Volume 65: Pages 246-361 - Federal Trade Commission

246 FEDERAL T'RADB COMMISSION DECISIOKS

Statement of Commissioner :.lacIntyre 65 F.

consisting of advertising or other pubJicity furnished by 01'

through respondents, 01' any of them, in a toy cataJog, handbiJ1

eircular, or any other printed publication , serving the purpose ofa buying guide , distributed, directJy or through any corporate orother device, by said respondents, or any of them, in cOlmectiol1

with the processing, handling, sale or offering for sale, of anytoy, gae or hobby products manufactured , soJd , or offered forsale by the manufacturer or supplier when the sRiel respondentsknow or shouJd know that such payment or consideration is notmade avaiJabJe on proportionaJJy equaJ terms to aJJ other cus-tomers competing with said respondents in the distribution ofsuch toy, gmne or hobby products.

It is f"rther ordered That the compJaint as to respondent

Marcus MercantiJe Co. be, and it hereby is, dismissed.It i8 further ordered That the hearing examiner s initiaJ decision

and order as modified and supplemented by the accompanying opinion, and it hereby is, adopted as the decision of the Commission.It i8 further ordered That the respondents subject to the order to

cease and desist shaJJ, within sixty (60) days after service upon themof this order, fiJe with the Commission a report, in writing, settingforth il detaiJ the manner and form in which they Jmve complied\vith said order.

Commissioner Heiny not participating.

Ix THE 1lATIR OF

THE REGINA CORPORATION

ORDER, OPI:NIOX, ETC., IN REGARD TO THE ALLEGED VIOLxnox 010 TJmFEDERAL THADE CO DIISSlON ACT

JJocket 8323. Complaint JluT. 14, 1DCI-DecisioJi

, .

-1priJ . 1.06-

On1lT reopening and modifying desist order of Oct. 11. 1962 , 61 F.that "its terms wil be in explicit accord witb" the CommissicnGnitles ..\gainst Deceptlye Pricing issued Ja1l. 8, 1964.

S3. so

revised

STATEl':IENT OF CO:iUnSSlOXEH J\L\CIXTYRE

APRIL lDG4

I m'n again compeJled to issue a sepai'ate statement setting forth my"je,ys on the Commission s action in modifying it cease and c1esi

order in a deceptive pricing ease antedating t.he rcvised Guic1f' issued

THE REGI A CQRPORATIOK 247

246 Statement of Commissioner l\IacIntyre

January 8 , 1 U64. In the petition now before us, respondent, ReginaCorporation (Regina), requests that the order be set aside in itsentirety on the ground that the aetivities documented by the reeord not constitute rt violation of Section 5 of ,the Federal Trade Commis-sion Act as presently interpreted by the Commission in the light of t.herevised Guides. In the alterna6ve, Regina asks that the order be

explieitly 1110difiecl to conform to the new Guides.In rejecting respondent:s plea that the order be set aside, the, Com-

mission employs rather facile generalizations , glossing over the con-te,ntion that Reginn, s past aetivitiBs as documented by the record do notconstitute a violation of the la,v as now construed. Sweeping asideHegina s arguments on this point, the Commission broadly asserts:

" ':' ,., the ::tamlards emUlciated in the Guides al' e intended to lie prospectiveratber than l'etl'o Vl.ctiYe , ill their application. The public interest \'(oulll not Ul.

s(' rvcd if the Comllis ion were to undertake the time-('onsnrnin! and \1Jsatis-fnctory trl."k of attemptigg to review , ill the light of I:very new p(\li(' '- r;ronounre-went. tbe records of all the eases in ,,-hich cease and desist orders han' JJecomefinal , in order to asu'rtaiu whetber the records would !;UPl1ort ;l fiwling of Yiolfl-tion under tJ1( IW'," standards. It is yery cloubtfnll1ow accurate snell !'-'tl'o.'pectiYeFyall1aunu conlcl lJe , or 110,,, useful "-auld be a process of contiIJUOI1S reexamina-tion of ()lfl, and frequently stale , records-

I canllot adopt this rationale , for the simple reason tlJi\t it doesnot come t.o grips with Regina s contention on this IJui111 , ",hieh , infact , raises serious questions meriting a responsive Hll(l reasoned reply.At the outset, I may stat.e that the assert.ion that the Guides areintended to be prospective rather than retroBpecti\'c in their applica-tion avoids the realities of the matter. The CommissioJl has onlyrecently dismissed complaints in a number of prot.eec1irJgs ul'oughtprior to the issuance of the revised Guides on the gronnd that, the proofin these pl'ocee,dings did not meet the ne'\, standards.

j:.

see FildeT-man OO1'pomtion , inc. , et aZ. Docket No. 7878 (lUG'l) (G4 F. C. 427J.

The Con1l11ission s assertion that the Guides are prospective. , jlll'eouttalof respondent's reqnest for rec.ision , is particularly inapp1-oprjate be-C-,1,use the application of cease and desist orders arc nOL re: l'ospcctivebut prospe,ctive as :far as responden(s obligations thereunder are con-cerned. Reginn. and respondents in other cases may \yell c1l11:stion theeflcet on their fut.ure business decisions jf all Commj siOJl policyrcversals of this nature \"ill be prospectiycly applied witho lL rega.rd to\yhat has gone before.

The Commission , in this instance , has ignored anothe1' i\:ndamentalconsideration. As I understand Section D of the Feder l Trade Com-mission Ad , t.he COlnmission is empU\\"' l'ed to issue c.eflse itnd desist

248 FEDERAL TRADE COM lISSIO DECISIONS

Statement of Commissioner :MacIntyre 03 :B'

orders only upon:t finding t.hat a violation of law has occnrrec1. Unlessthe Comn1ission c.omes to grips with t.he issue of whether respondenfpast a,etions doemnentecl in this proceeding are v-joJative of the Act, Ido not see hO\y, in good conscience , it can keep in efI'eet a cease anddesist order bearing on respondent's future conduct. The justifieatlonthat a review of the record in this IH' oceecljng \voulcl be either undulytroublesome or time c01l8uming docs not abso1ye the Commission frompcrforming it.s statutory functions. The Commission \vil1 have tograpple \vith t.his issue , either in this proceeding or in other deceptivepricing eases "herein outstanding orders issued prior to .Talllwry 8196-1, are in effect, and the numbcr of CHEf'S in this category arecourse, 11l1mfJrOllS. The Commission may refuse, at this time , to decidethe fillest,ion of 1Yhether n re-"pondent:s activities Jending to an out-st.n,nding cease and desist order are in violat.ion of the 1a"\," as presentlyinterpreted by this a.gency. "Ve should not , hmyeyer , b( snrprised ifthe eonrts arB asked to Hll the vaCl1Um the Commission has left, if IYOabclien.te our functions in this manner.The C0D11nission s treatment of this issue i nor('s the further point

that a dee-sion on the merits as to ,,-hf'ther responc1enes past conductviolates the la1Y as now const.rued is required here o that at lcastrespondent a,nd those on the Commission s staff charged with enforc-ing this 8,ncl similar orders ,Yil1 kno\y Iyhat the Commission s positionis. ";"11i10 the, enlsion of this question may stave off some aclmit.ecllydiffcult problems in the jmmediate future, in the long run it canonly lead to fmiher disarray in an area of the Ja". a1re,ady subjectto considerable confnsion.

Igl10ring the issue of whether the respondent should be l1nc1er orderat al1 the Commission has modified Regina order by ebborflting on

its p/'o tanto

':

modification procedure employed in Olin ton W"atchOompany: et aZ. Docket No. 7434 (Order Denying Pet.ition To ReopenProceeding', isslled February 17 , JD64) C64 F. C. 1443j, with which Iwas unable to agree at that time. In this instance, hI additjon to statingthat all outstanding orders shall be interpreted and " thus 7)(0 tantomodified, so as to irnpose on respondents subject t.o such orders nogTeater or different oblig'ations than are stated in the Commission;8\Yly- revisec1 Guides

.\g

;jnst Decept.ive Pricing , the Commis ion has

1 Section 5(b) of the Federal Trade Commission Act states in pertinent part: "'" '" The

testimony in any such proceeding shall be reduced to writing and filed in the ot-ce of theCommission, If npOll s11cll hearing the Commission shall lie of the opinion that the metllodof ro:npetitiOD or the Dct or practice in qllestion is prohibited by thjs Act , it sJwll make nreport in writing in which it shall :;tate its tindings fiS to the facts and shall issue find cameto be sec',ed .. ,. an order requiring sucll person , partnersll!p or corporation to ct'2j.eand desi t from using' such method of competition or such act or practice. ,. .. 2 Sr8 my statement on the revised Guides . issued January 8, 1964.3 See my tatement CUnton Watch Company, et al. Docket o. 7434 , Febrnnry 17, 1964

(04 F. C. 1444).

THE REGIXA CQRPQRATI02' 249

246 Order

specifieaJJy amended the orderdesist fr01ll the following:

to require respondents to cease and

Advertising or disseminating any list 01' pre-ticketed price unless such price isa good faith estimate of the actual retail price and does not appreciably exceedthe highest price at which substantial sales are made in respondent.s trade aren.

As I stated in Clinton Watch Oompany, et al. Docket 1\0. 7434,'respect for the businessmen who come before us , as well as for theil,ppellate courts, requires that COl111nission orders be drafted with suf

fieient precision so that they ccm be understood. Although the modifi-cation of the Regina order is SOlll8\vhat more elaborate tha.n that ofOlinton Regina s obligations aTe defined "\"lih no greater clarHy thanthose of the watch company under its modified order. The mollifiedorder in this proceeding is a classic example of the enforcement prob-lems "\\hich may be expected fl'OlH the use of rtcrms "\yhich have not beenadequately defined by eit.her the courts or this agency. ;; In this case theCommission has done agltin "hat the Supreme Court said we should

not do , namely, shifted to the courts the burden of determining thefactual question of IYhat constitutes unfair conduct. See Federall'radeC01nTnission v. 111orton Salt Company, 334 lJ.S. 37 (19;18). I nlust rcit-erate. 1TIY surprise thnt this Commission , IYhich recently lUts made somany pronouncements of the necessity for dear and definitive orders

, in the deceptive pricing area, issuing orders , the terms of whieh aresoirnprccise and indefinite that they can lead only to administrativeand judicial confusion.

ORDEH REOPENIXG PROCEEDINGS AXD :\:IODIFYING

Or-nER

CEASE AND DESIST

By telegram dntecl February 7 , 196-:t , the Commission advised counsel for respondent in the above-captioned proceeding that , upon ap-propriate petition therefor , the C01mnission would modify the ceaseand desist order against respondent to conform with the revised Guides

4Id.5 Fol' example , respondent, under the modified order, is required to employ a "good faith

estimate" of the actual retail price prior to advertising or disseminating list or preticketellprices. To my knowledge neither the Commission nor the courts have ever defined thecriteria for determining the good faith of the seneI' in estimating actual retail prices inany tracle area. There is the further rcquircment that Regina cease amI desist from dis-seminntillii list prices or preticketed prices unless such prices do IlOt "appreciably l xceed"the highest price at which substantial sales are made in respondent's trade area. Againthere is no precedent whIch wil aid either Regina or other respondents similarly s!tuateu01" the CommIssion s staff. for that matter, in determining the meaning of that phrase.The Commission lea'Ves unanswered the question of by what percentage a list price or pre-ticketed price would have to exceed the highest price in Ii trade area at which substantial

sales are made. Respondents and the Commission s staff will be faced with similar diffcul-ties in trying to dIvine what "substantial sales " might be in a particular trade area. 'r'applicable percentage could conceivably vary from 1 to 100 percent.

6 See my statement, Clillton Watch Company, et at I(p1"a n. S (64 F. C. 1444).

313-121--70--

250 FEDERAL TRADE COMMISSIO DECISIONS

Order 65 F.

Against Deceptive Pricing (issued January 8 1964). Accordingly, onFebruary 12, 1964 , respondent filed a petition, pursuant to Section

28 (b) (2) of the Commission s Procedures and Rules of Practice, toreopen the above-captioned proceeding for the purpose of setting aside

, in the alternative, modifying the cease and desist order. On March 51964, the DireCJor of the Commission s Bureau of Deceptive Prac-tices filed an answer to respondent' s petition , and. respondent filed areply on )Iarch 13.

Respondent in its petition contends that , tested under the standardsof the newly revised Guides Against Deeept.ive Pricing, the evidenceon which tIle eease and desist order against respondent "as based isinsuffcient to demonstrate a violation of law, and that therefore t11corder should be vacated and set aside. However, the standards mum-ciated in the Guides arc intended to be prospective , rather than retro-spective, in their application. The public interest would not be servedif the Commission were to undertake the time-consuming and unsatis-faetory task of attempting to review , in the light of every new policypronouncement, the records of all the cases in which cease and desistorders have become final, in order to asccrtain whether t.he recordswOll1d support a finding of violation under the ne-w standards. It

very doubtful how accurate such retrospective evaluations could beor how useful would be process of continuous reexamination of aIeland frequently stale, records.

Since-, however , the newly revised Guides are intended to ha,ve auniform, prospective application , it is the Comn1ission s stated policythat all outstanding cease and desist orders involving deceptive prie-

ing shall be interpreted , and thus pro tanto modified , so as to imposeon respondents subjeDt to sueh orders no greater or different ob1iga-tions that are stated in the Commission s neITly-revised Guides AgainstDeceptive Pricing

,', *

Olinton TVrdch Oompany, C. Docket7434 (Order Denying Petition to Eeopen Proceeding, issued Febru-ary 17, 19G4) C6'1 F. G 1443). In yimy of this policy, the Commissionhas determined to grant respondent's reqnest to reopen the above-captioned proceeding, and to Inodify the cease and de:oist order so thatits terms will be in explicit accord with the Guides.

AccoTdingly, it ls ordered That tlle C0l111nission 'i cei1 e :llcl desistorder issued on Oetober 3, 1962 , as amended by its order correctingfinal order issued on October 11 , 1962 C61 F. C. 983J, be , and it hereby

, amended so as to requ.ire respondent to cease and desist from:Advertising or disseminating any list or pretic.ketecl price unless

such priee is it good f!Lith estimate. of the aet.ual reb.il price anddocs not appreciably exeeed the highest price at T\hich substrmtjalsales are made in respondent's trade area.

Commissioner Thfaclntyre not concurring.

NORTH AMERICAN PHILIPS COMPANY, I 251

Complaint

IN THE MATTER OF

XORTH AMERICA PHILIPS COMPANY, INC.

ORDER , l' TC. , IN REGARD TO THE ALLEGED VIOlu\TION OF THE FEDERAL TRADE

COl\DfiSSION ACT

Docket 8472. Complaint, Mar. 1962-Decision, Apr. 9, 19-64

Order dismissing-since respondent's advertising and promotional matter hascarried no reference to price since issuance of the complaint and the Com-mission lacked information that its advertisements fail to satisfy the

quirements of the Guides Against Deceptive Pricing-complaint charging

the manufacturer of "Nore1co" electric shavers with supplying its distribu-tors and retail dealers with advertising material designating excessive

amounts as "Suggested Retail Price , etc., and with advertising the same

prices in newspapers and magazines.

COl\IPLANT

Pursuant to the provisions of the Federa1 Trade Commission Actand by virtue of the authority vested in it by said Act, the FederaJTrade Commission , having reason to believe that North Americ.a.nPhilips Company, Inc. , a corporation , has violat.ed the provisions ofsaid Act, and it appearing that a proceeding by it ill respect thereofwould be in the public interest, hereby issncs its complaint, stating itscharges as fo1Jows:

PARAGRAPH 1. Respondent X orth '-merican IJ hilips Company, Inc.is a corporation organized , existing and doing business under and byvirtue of the laws of the State of Delaware with its principal offec andpJace of business at 100 East 42nd Street ew York 17 , New York.

PAR. 2. Respondent is now, and for some time last pm:!' has been , en-gaged in :the advertising, offering for sale and sale of electric shavers todistributors and retail dealers under the trade name "Norcleo

PAR. 3. In the course and conduet of its business , respondent nowcauses , a,nd for some time last past has caused , its said merchandisewhen sold, to be shipped from its places of business in the State of)Iew York and elsewhcre to purchasers thereof located in States otherthan the States in which the shipments originated and in the Districtof Columbia and ma.intains, a.nd at all times mentioned herein hasrnainta, inec1 , a substantial conrse of trade in said merchandise , in com-Inerce, as "colTl1nerce" is defined in tIle Federal Trade Commission Act.

PAR. 4. In the course and conduct of this business , re.spondent hasengaged in the practice of sl1ppJying its distributors and retail dealers\vith ad vertising material and other Pl'intetl matter conta:inillg amountsdesigna.ted as "Suggested Hetail Price and "J)Ianui'aetul'erSuggested R,etail Price." Respondent has a1so p1aced advertising

252 FEDEHAL TRADE C02\I:\ISSION DECISIONS

Order 65 F.

containing the same prices in newspapers and magazines of generalcirculation. The screral models of the electric shaver and the pricesspecified , as described abovc , arc as follows:

:\o1'('1co Speeusl1an:r with floating lleacL_

_____ ----- ------

X orelco Speedsha \"e1'__- - ---

--- - - - - - -- - ----- - - -- - - - - - - - - - - - -- --

X oreko Sportsman- - -

- - --- -- -- - - --- -- - - - - - - - - ---- ---- - - - -

Lady K ore1co- --- --

- -- -- - - - - --- --- - --- - - --- ------ -- ----- - - -----

Coquette --

-- ---- - - --- -- - --- - --- - -- - - - - ----------- -- - - - -

$2D. D5

24. \)519.24.17.

PAR. 5. By the aforesaid practices respondent has represented , andhas placed in the hands of retailers and others the means and instru-mentalities of representing, direct.ly or by implication , that such pricesare the usual and customary retail prices for sueh merchandise.

\R. D. The aforesaid statements and representations were and arefalse , misleading and deceptive. In truth and in fact the stated priceswere and are substantially in excess of the prices at ,, hich the ilch-er-tised products were and arc usually and custOlnarily sold at retailin the trade areas ,yherc the representations iyere made.

\R. 7. In the conduct of its business , at all times mcntioned hereinrespondent has been in substantial competition in commerce with cor-porations , firms and individuals in t11e sale of mcrchandise of thesame general kind anclnature as that sold by the respondent.

PAR. 8. The use by respondent of the aforesaid false , lnisleadingand dece.pt.ive ,statements , representations and practices has had , andnow has, the capacity and tendency to mislead l11embers of the pur-chasing public into the erroneous and mistaken belief that said state-ments and representations 'Ycre and are tnlC and into the purclla.se ofsubstantial quantities of respondellt s products by reason of said erro-neous l1nd mistnken belief.

\R. 8. The aforesaid acts and practices of respondent, as herein,tlleged , ,ycre and arc all to the prejudice and injury of the public andof l' f.spondent' s competitors and constituted , and now constitute" un-Jail' metJlOds of competition in commerce and unfair and deceptiveacts and practices in commerce, in vioJation of Section 5(a) (1) of theFedera) Trade Commission Act.

OnDER DISJ'lSSI G THE CO:\IPLAINT

The complaint herein, issl1cc1l\farch G , 1962 , clnlrged the respondentith the unfair trade practice of supplying distributors -and retail

dealers of its electric shavers with advertising material rmc1 otherprinted matter containing certain suggested reta.il prices which weresubstantially in excess of the prices at which said products werc usuallyand customa.rily sold at retail in the trade areas where the representa-tions ',cre 111ac1e. Rcspondcnt filed all anS'Iver thereto which in essence

FARRAR, STRAUS AI\D COMPA::"" , I:"C.) ET AL. 253

251 Complaint

deni( d the material allegations of the complaint , and whieh assertedas t separate and complete defense abandonment of all references iopriee in all of it.s consumer advertising materia.l more than six monthsprior to issuance of the compJaint.On September 11 , 1862, the Commission placed this matter 011 the

Suspense CaJendar and referred the files to the Burean of IndnstryGuidance for negotiation of -an agreement of voluntary ce satioll ofthe aforesaid misleading advertising practices. The Commission hasnow been advised that neitlH r l" SpOllaeJlr.3 consnmer advertising norits consumcr prollotionalliterature presently contains any reference

to a suggested retail price, and \,e are informed that such material

has carried no reference to price since the complaint isslled. Furtherwe hftve been assllred that rcspondent intends to continue to omit anyreference to price in all consnmer literature \vhieh advertises 01' pro-motes tho electric shaver models presently marketed by it and thatit ha.s takell speeifie steps to eft'ectllate this result. Final1y, the Com-mission is not in possession of information indicating that respondent'sadve.rtising fa.ils to satisfy the requirements of Guide III of the re-cently promulgated Gnides \.gainsj- Deceptive, Pricing, eft'ective. .Tann-ary 8 1964. Accordingly,

It /8 onlcreel That the complaint. heroin be , and it hncby isdislTlissed.

Ix THE )L\.TTEH or

FAIUL\R, STEArS X\'D CCnJPAXY , IXC. , ET A1,,

ORDER , ETC. , IN 1:1-(;,\HI) TO THE ALLEGED nOL\TIOX OF THE FEDEH.H. TR,\DE

CCnnrISSIQX ACT

Docket 85SS. COmIJlaili! . .TIlly .t963- lJeci-s'ioH , April 196''1

Order reql1il'ng n publisher and its advertising agency. both in New York City.to cease making yurious misrepresentations in ad,- ertising in l1e'Y IX11Jers

and magazines and otber promotional matter flS to the health and otllerbenefits to he deriYed by persons following: the diet::H ' prineiples. formulasfind ill.;;1:rnctiorJ.'; in Gayelord Hauser :, book entitler1 " JIirror. 2\Iirrol' OnThe 'Vall"

C03II' L\INT

Pursuant to the provisions of the Federal Trade C0l11nissioll Actand by virtue of the aut.hority ye.sted in it by aic1 Act , the FederalTrade Commission , having reason to believe that Farrar, StriJus andCompany, Inc.,' a corporation , and Sussman ::1.(1 Sugar , Inc. ~ ':1 cor

Rf'jlOJ'tf'd. as nmen(lrd by order of heal'llg f'xaminr'J' daterJ Or:!. 1-1 , 19\J3, to l'rflectpl'f'sent cOl'pol'ntc nnme of reSl)OI1(lcnt.

254 FEDERAL TRADE COMMISSION DECISI01\

Complaint 65 F.

pOl'ation , herein referred to as respondents have violated the provi-sions of sa:id Act, and it appearing to the Commission that a proceed-ing by it in respect ,thereof wouJd be in the pubJie interest, herebyissues its c.omplaint, stating its charges in that respect as follo\Vs:

\.R"\.GR.\.PII 1. Respondent Farrar, Straus and Company, Inc. , is acorporation orgftnized , existing and doing business under and by vir-tue of the bws of the State of X ow York. This respondent's offce andprincipa.l pla.ce of bl1sine s is located at 19 lJnion Square "'Vest, NewYork, Xew York.

Respondent Sussman and Sugar , Inc. , is n corporation organizedand c:xisrjng and doing business under and by virtue of the la'lYs ofthe State of X ew York. This respondent's offce and principal pJace

of business is Jocated at 24 ,Yest 40th Street, Xew York , New York.\R. 2. Hesponclent Farrar, Straus and Company, Inc. is 110\\ , and

for some time last past has been , enga.ged in the publication , promo-tion , sale and distributioll of a book entitled " Iirror lirror On The,Va11" by GaycJord I-lanser. This respondent canses said book whensold to be transported from its place of business in the. State of NewYork to purchasers located in various other States of the UnitedStates nnd in the District of Colmnbia. This respondent ma.intainsand at all times lnentionecl herein hRS Inai11tainecl , a substantial tradein said book ill commerce , as ;; commerce" is defincd in the FederalTn. c1e Commission Act.

Responcle.nt Sussman and Sugar, Inc. : is now and at all times men-tioned herein has been , the advertising agcney of respondent FarrarStrans and Company, Inc. , a.nd now prepares and places , and haspreparod and placed , for publication the advertising and promotionalmateria 1 \ referred to herein , to promote the sale of the aforesaid book.

\I1. il. In the c.onclnct of its busincss , at nIl times Inentionccl hereinrespondent Farrar , Strans and Company, Inc. , has been in substan-tied competition , in COIlnnercc , \Ylth other eorpol'ations , firms and indi-viduals in the, eale of books.

In the conduct of its business , rut all titTles mentioned herein, rc-

spondent Sussman and Sugar , Inc. , has been in subst.antial compeJi-tion , ill COl,ll-:lCree , \yith othcr corporations, Jlrma and individuals inthe acln' rti5ing l!lEiness.

\n. 4. In t.he COl1r e and conduct of their bm:;jness , and for the pnr-pose of inducing the purchase in commerce. of sllid books , respondentshave mflc1e ce.rtain sta:ternents and representations with respect heretoin acln' ltise,ments inserted in lw\Yspllpers and magazinc3 , and in otherpromotional material having a general circulation throughout theTarions St.ates of the l'"nited States and ill the District of Columbia..

FARRAR, STRkGS AND CO).1PAKY, I , ET AL. 255

253 Complaint

PAH. 5. .\mollg and typicaJ but not a1l inclusive of ,the statementsand reprc.sellbtions made and appearing in said advertisements , a.ndin other promotional nmterial disseminated as herein set forth arc thefollO\ying:

For the long suffering reducers wbo try every new diet. Gayelord Hauseroffers ,vekomc and comforting relief witb bis shortest short cut to reducingan easy 1: follow l'ommon sense way of shedding weight gradually, withouttears 01' calory charts.

Givp your husband a new heart , a new waistline.

A bea ntifying slimming diet with no mention of calories.

"' '" tbis says Mr. Hauser does not mean yon must suffer tbe rigors of alow calorie diet.

:Fol'get .:Ql(Jl'cs

ODce yon di oyer the way to control chemical balance of your body youenjoy eating exotic foods, bread, butter , salad oil , * 'I , and delicious

dt's.;ert3.

For your husbandHow to exel'cise scalp and save the hair *

'" *

Diet and Potency , .. ..' how to Protect tbeheart

..'

Teach him 110W to exercise the scalp to saye his hairReyeal to him the connection between diet and potencyShO\y him bow 11e can protect his beart

'Yolltlcr ,"\"orkin.: new fonnnlas for beauty.Faee tighteuer apply it \\-ash it off amI watch droopiness disavpcarA \"illegar ('url' for stubborll dnnc1ruff10 sel'ond slendeJ'zerl':lSY:O pl'epnre n!:ck tightener helps bring beauty stream to loose neck tissues.herb recipe to add brightness and darity to eyes

':'

The v;(:ljc1er-\\-ol'ldng secret is that you willeam how to control the chemicalbalf/uce of ;\"0111' body. Remember: the most beautiful ,yoman ill the ,,,orld ismade of the 'l'ry same chemicals as you. The c1ifferen e is in the way thosechemicKls H'e distrihuted throughout the body.

, *' ::\11'. Hanser. who lias already led thou ancls of people to better healthand longer life tells how yon can ac:hie,e a deep and lasting lo'Velinessthrough this wonderful ne". benuty plan. It is a plan bnsed on the magic ofbeauty giving foods and simple skin.nourishing facials.

256 EDEHAL TRADE COMMISSIO DECISIO

Complaint G3 F.

This is the way of naturnl cosmetics.You wiUlearn what foods to eat, what eas:!. l1'Yl' tiring exercises to tftkl'wbut simple , nutritions cosmetics to apply

'" '" ,,;,

.IOU too Hlu t nourish yourself ,,-ith beauty giying foods amI co,mwtlctreatments

'" .. "

Xow' , Gayelord Hanser l'€'-eals these surprising secrets:

' ,

, " '''hat call Dr. Rudolf Yircho\y s experience teach you aborit the orderin \vhicb to cat your food?

He shows that you can be more beautiful, almost instantly, by" getting ridof tension.

.:11'. Hauser s most important principle is t11o.t no cosmetic treatment canequal or m€f1SUl'C up to the natural glO\Y of good health. f1nd he sho\Ys howit can be attain€ll anclrnaintaincd

\H. 6. Through the use of said a(h ert.sements , and other similarthereto not specifically set out herein respol1(lents haTc representedand are nmv representing clireetly and by implic.ation:

1, That by foJlowing the dietary principles set forth in the book ,.person ,, ill :

(a) Lose "eight without reducing his caloric intake.

(b) Protect the heart or restore it to normal( c) Increase sexual potency,(d) Be abJe to controJ the chemical baJancc of the body and di,-

tribute chemicals within the body in a prescribecl manner.2. That by following certain formulas or inst.ructions set forth in

said book a person wiJ:(a) Tight.en the skin of the faec and neck nnd eliminate loose face

and neck tissue.(b) SJenderize in 10 seconds.

(c) Add brightness and clarity to the eyes.(d) Prevent baJdness,

(e) Cure stubborn dandruff,

(f) Rid himseJf of tension.

(g) Attain heaJth and remain heaJthy.

3. That the order in which one eats food is important to his health.4, That the cosmetics describe c) in the book are naturaJ and

nutritious.5. That the book contains hundreds of marvelous secrets of healtb.6. That the exercises described in the book will never be tiring to

the onE performing them.

FARRAR, STRAUS AND COMPA:\'Y, INC. , ET AL. 257

253 Complaint

PAR. 7. The aforesaid statements and representations are false, mis-Jeading and deceptive. In truth and in fact:

1. A person foJJowing the dietary principJes in the book:(a) "'ViII not lose weight without reducing his calorie intake.(b) ,ViJ not protect his heart or restore it to normaJ , or have any

other bene.fic.ial effect upon his heart.(c) ,Vi11 not increase his sexual potency.

(d) ,ViJJ not controJ the chemicaJ baJance of his body or distribute

chemicals .within the body in a prescribed manner.2. A person follO\ving the formulas and instructions in the book:(a) ,ViJJ not tighten the skin of his face and neck and wi11 not elim-

inate loose face and neck tissue.(b) WiJ not slenderize in 10 seconds or in any other period of time.(c) 'Vi11 not add brightness or clarity to his eyes.

(d) ,ViJ not prevent or rctard baJdness or excessiyc hair Joss.(e) ,ViJJ not cure dandruff.

(f) ,Vill not rid himself of tension , or reduce or relieve tension.(g) Cannot rely upon attaining health or rcma.ining healthy.. The order in which one eats food is not important to his health.

:1. The cosmetics deseribed in the book are not natural nor are. theynutritious.

5. The book does not contajn hundreds of secrets of health.G. The exercises described in the book may produee fatigue in the

person performing them.PAR. S. The use by respondents of the foregoing false , mislcading

and deceptive statements has had and now has the tendency Rnclcapaeity to mislead and deceive members of t,he purchasing public intothe crroneous and lnistaken belief that such statements were and aretrue ltnd into the purchase of substantial qua.ntities of respondentsbook by reason thereof.

PAR. 9. The aforesaid aets and practices of respondents , as hereinaJleged , ,yere and are , a1l to the prejudice and injury of the public andof respondents : competitors and constituted , and now constitute , unfairmethods of competition in commerce anc1unfair and clec.eptiye acts a,nelprnctices , in commerce, in violat.ion of Section ,") of the. Fedcra.l TradeCommission Act.

.11)' . G(u1anrl f- . FeJ'9l1son and Ali' . IIon' myl S. Ep8tein supportingthe complaint.

llh. Patrick Fl. Sullivan , l1h. E. Kendall Gilett, fT. and 1VllitnumRan'jOTlL and Coulson of N81, York, N. , for respondents.

258 FEDERAL TRADE COMMISSIOK DECISIONS

Initial Decision G3 F.

IXlTIAI-, DECISION BY ,V,\LTER K. BEXXETT , I-IEARING EXA?IISER 1

FEBRUARY 11 , IDG4

In this proc.eeding the FederaJ Trade Commission seeks t.o preventa11eged falsc advertising exemplified by that relating to a. copyrightedbook

, "

Mirror, :Mirror on the vYaJJ " by GayeJord Hauser. Some of thequestioned advertising quotes the dust eover of the book. Respondentseruestion the power of the Commission to prevent sllch advertising anda.lso the issuance of any order aga.inst the advertising agenc.yrespondent.

The Pleadings and Pl'etl'hll Proceedi1'i.gs

The compJaint herein was issued by the FederaJ Trade CommissionJuly 20 1963. It a.lleges that respondent Fanal' , Straus and Company,Inc. / (herein designated Farrar) is a X e\y York corporation cngngeclin publishing a,uel that it is the publisher of ;; 1il'ror , JIirrol' on the,Vall.': Respondent Sussman and Sugar , Inc. , (Susslllan) is also n XcwYork corporation and the a(h erLising ageDcy which prcpa,red the-advertising for the book. Both respondents are. alleged to be engaged ininje.rstate commerce and in competition \yith other corporations in thesaJe and in the advertising of books , re8pect:)Yely. The advertising ofthe book is quoted and there are allegations concerning the rcprescnbl-bOllS Inade thereby. These. representations are alleged to be false mis-leading, a.nd deceptive. They are further alleged to have the tendencyto lead the purchasing public to purchase the book and thus to consti-tute a violation of S 5 of the Federal Trade Commission --"-ct.

Respondents filed their answer Augnst 30 1063 , acbnitting the statesof incorporation , the jurisdictional facts regarding interstate com-

mcree , and that most of t.he quoteclmattel' ill the eomplaint appeared inadvertisements of the book or on the dust cover. The answer claimedthat SOl11-e of the advertising was quoted out of context or incorrectly.Respondents denied that the advertising \\"as m isleading or that they

hflc1 violatr.c S 5 of the 1, ccleraJ Trade C01llmissioll_tet.A preheal'ing conference ,"as held October 11 , 196; , which is SUl1-

ma.ri ed by the order of the undersigned dated October 14, 1963 , thetranscript thereof \vas thereafter amended , on notice , by on1f;l' datedX overnber 12 , 19(j3.

Follo\ving the prehearing order, and on t he eve, of trial , connse1 fol'respondents mOl-eel to amend the.ir ans\Yer, among other things, to

1 Caption and body of compJaint nmended by order dated October 14 , 1963, to reflectpresent corporate Dame of respondent.

2 Tbe complaint originalJy used the title Farrar, Straus and Cudaby, Inc., former IWUH'of one of tlle respondents. This was cbanged by order of October 14 , 1963.

FARRAR, STRAUS AKD COMPAl\'Y, INC., ET AL. 259

253 Initial Decision

agree t.lat if complruint counsel presented medical testimony such test.in10ny would support the aJlegations in the complaint concerning' thefalsit.y of the representations. Respondents continued to deny that. theadvertising should be c01l2,trued as al1eged in the complaint but enteredinto a stipulation ,vhich counsel represented made further hearingsunnecessary. Thereupon on motion of counsel supporting the com-plaint, the hearing exanliner entereel an order dated December 2G , 1963

,yhich granted respondents' motion to amend its answer and counscl

supporting the complaint's motion to receive the stipulation and exhib-its, close the rccord and set times for iiJing proposed findings, conclu-sions and memoranda and counter proposals. Thereafter proposedfIndings , conclusions and nlemorancla werc filed pursuant to such order.

Basi8 fOT Decision

Based on the record of this proceeding c.onsisting of the complaintanswer, amended ans\\-er (and Illotion papers filed \vith it), stipulationdated Decemue,r 11 , 19G3 , and the exhibits m lrked foridentificntionduring :the pl'ehearing conference , and received in evidence by the

undersigned' s order of Dece,mber 20 , 1063; and , Jw ving considen'c1 theproposed findings , conclusions and memoranda of counsel; the follO\y-ing findings of fact, conclusions and order are made. All proposed

findings of fact and conclusions not ma(le in sllb tallcc or in the termsproposed are rejected.

FIXDINGS OF F.-\CT

1. Hespondent. Farrar, Straus and Company, Inc. (hereinafter some-times referred to as Farrar), is lL corporation organized , existing anddoing business uncler and by virtue of the hws of the State. of K ewYork \yith its offce and principal place of bm:iness located at H) UnionSquare ,Vest, New York , New York. (C 1 admitted by faiJure tD deny

, HF 1 , see CF 1.)2. Respondent Sussman and Sugar , InC'. (hereinaJtel' sometimes

referred to as Sussman), is fl, corporation organized , existing and rloingbusiness under and by virtue of the "In\ys of the State of J\T e.\y York

3 Pursuant to rule 3.21(b), abbreviated references arc !Dade as follows:(A) lucans respondents ' answer.(C) refers to complaint.(S) meltlS stipubtion oated DeecDlber 11 , 1903.(jL\) means respondents ' amended answer.(CF) refers to Commission proposed findings.(RF) refcrs to respondents' proposed findings.(TH.) refers to the transcript of the prehea.ring' conference.

(CX) refers to all exhibit mad.e part of the n:cord by order dated December 2(J, 1963.Heferenee to pal'ticulfLl' proof is made as an example. It In no way indicates th:l t the

hearing eX:lminer hils failed to consider the entire record.

260 FEDEHAL TRADE CQ:\IMISSIOK DECISIOXS

Initial Decision 65 P.

with its offce and principaJ pJace of business Jocated at 2J ,Vest JOth

Stl'eet , Xcw York, Xcw York (C 1 admitted by fajJure to deny AARF 2 , see CF 2.

3. Respondcnt Farrar is now, and for some t.ime last pflst has beenengage.d in the publication , promotion , sale and distribut.ion of a bookentitJe,l

, "

:Mirror , Mirror On The ,Y,llJ " by GayeJord Hauser. (C 1

admitted AA 1 , CF 3 , see TIF 3.4. ReSpOll(1ent Sussman is nmv , and n.t all times herein l'ele,vant , has

been , the advertising agency of l'csponc1e,nt Farrar. It prepared andplaced for publication and dissemination tl1e adyertising and promo-tjonal materiaJ designated CX 2A , 2B , 3A , 3B , 4A , 4E , and 40 (8 3HF 3 , CF 4, see A-- 1), to promote the sale or said book

, "

:.IirrorIirrOl' On The IYa11.5. Re$pondent FaITHI' eau es said book \vhen sold to be transported

from its plnee of business in the State of New York to purchaserslocated in vflriol1s othcr States of the United States a.nd in the Districtof Columbia. Respondent Farrar HlH intains and at an times mentionedhcrein has m:tintainl'd a ::;uhstftntiftl trade in said book in commerce,

coJlmerce : is defincd in the Federal Trade Commission \.ct and has

beell in substantial cornpetition , in comme.rce with other corporationsfirms i11lc1 indiyidnaJs in the publishing business. (..L\ 1 , RF :3 , CF 3.

G. In the conrluct of its business , and at all times rele,-ant hereinrespondent Sussman also lws been in snbstantial competition , in com-merce , \"ith ot.hc!' corporations , firms and indi'- Lchwb in the flcb-el'tis-ing lmsiness. (RF 8 , CF 6.

I. In the COln' and conduct. of their business, and for the purposeof inc1ncing the purchase in commerce of said book , respondents havemade certain statements and representations with respect thereto inadvertisements inscrteel in lle'YSpapers and magazines , and in otherproJl0tional material having a. general circulation throughout thevarious States of the United States and in the District of Columbia.

(C J admitted by failure to deny A , AA; CX JA , B , C and D , ex, B.

8. ---\mong such statements are the following, contained in the dustjacket of the book, " Iirror, Mirror on the IYaJJ"

(n.) He .'311O\Y:, that you can be more heilntifnl , almost im,wntly, b;v getting rielof tension , the Xnmber One destroyer of othel"yise lo-,l faces and figures.(eX lA.

(b) FOl" the long suffering, rcduccrs who try every new diet that comes along,GuyeIOl' ll Hilmer offers welcome nnd comforting reHef Vdt1l !lis shortest bol"tcut to reducing-an ei1sy- to-follO\y comlion-sense way of shedrUng weigbtgnHlunlly, witl10ut telll' '; or ca10ric charts. In fact , he does Dot use the ",orur'11ol'ie ' ilt 1111 in thh; bool;;. (Emphasis in original.

(c) Gin:' ()nr hl1 klId a lIew heart, it new wnh;tline. a new life

FARRAR) STRAUS A),T COMPA J INC.) ET AL. 261


(Item (c) above is in quotation marks apparently from three sen-tences at page 2.47 of the book: Give hi1n a new heart

, *

::1 Givehirn a new 1.()audline

* : , "

and ;r. Gh;e khn a 1Ie?L' life

: *

8. It was not established that respondent Sussman was responsiblefor the publication of "Mirror, Mirror on the IVaJJ " or the dust jacketaccompanying it. That was the responsibility of Farrar. (RF S , SAAl.

10. Among the statements contained in an advertisement ill boththe October 1 , 1861 "This 'Week" Magazine, 1'1'. 11 and 12 (CX 2A and2B) and the January 6 , 1863 "Parade" :\Iagazine , pp. 13 and If (eX3A and 3B) are the foJJowing:

(a) A heading, " Beautifying, Slimming Diet 'iYith No )lention ofCalorie:; '::

,;, *

(b)

, :,

, This , says Mr. Hauser, does not llean you must suffer the rigorsof a low calorie diet. As 11 matter of fact the1' i8 '/ot mention of calorIcs in this1rhole amazing book

(c) SPECL\.L FOR TO"CR I-PSBAXD. Teach him hmy to exercise the scalpto save his hair. Reveal to him the connection between uiet and sexual pot:enc

" '" Show him hmv he can protect his heart.(d) W01\ DER WORKING EW FOR.vlULAS FOR BEAUTY. The fabulous

face tightener. Apply it, wash it off, and watch droopiness disappear. A vinegar(;ure for stubborn danuruff. '111e 10 second slenderizeI'. An easy- to-pl'epare Jlecktightener that wil help bring the beaut.y stream to tlJOse loose neek tissues. Anold fashioned herb recipe to add brightness and clarity to your eyf's.

(e) 1.he wonder-working secret is tbat you wil learn how to control the chemi-cal balance of your body. Remember: the most beautiful woman in the worldis made of the very same chemicals as you. The difference is in the way thosechemicals arc distributed throughout the body.

(f)

':' .

. * 1\11'. Hauser ",Yho has already leu thousands of people to betterbeaJ;h and longer life, tells how you can achieve a deep and lasting lovelinessthrough his wonderful new beauty plan. It is a plan basel! on the magic of beautygiving foods and simple skin-nourishing facials , and invigorating hOlle beautytreatments.

(g) This is the 'yay of natural c08metic8 and it can lead you to the kind ofglowing good looks that u;on come off at night.

(h) You wil learn ,,' hat foods to eat , what easy, ne,er-tirh1g exercises to takewhat simple mttTiUou8 cosmetics to apply, and hundreus of other marwloussecrets ",yhich ,,' ill result in an air of enviable loveliness.

(i) '" );: * you too must nourish yourself wHh beanty giyjng foods amI cos.lletic treatments " , , 'I'

(j) Kow, GayeJol'd Hansel' re,eals these surprising secrets: ':' ,Vhatcan Dr. Hndolf ' irehD\v s experiment teach you nbout the order in which you

eat your food? (Emphasis in orig-inal. ) (CX 2A , B , 3A , E , S 2.

11. Respondents prepared and published or CQllscd to be preparedHnd published the adycrtising making all of the statmnents 01' rep-J'Psentations contained in finding 11unbcl' 10. The publicat.ions inwhich they appeared are supplements to newspape.rs having a genera.lcirculation. They also ac1' ertisec1 in other ne\Yspapers circnlating

262 l"EDEHAL TnADE CO:-L\USSION DECISIONS

Initial Decision 65 F.

throughout the various States of the united States and in the Districtof CoJumbia. (RF 6 , ll , C ,1 admitted by faiJure to deny, AA, CX 4-Aand B , 5-A and B.)

12,. Proof "Was not. 11lacle concenling all of the statements alleged inparagraph five of the compJaint to have appeared in advertising hav-ing a. general circulation throughout the V:1TIOUS States of the lJ nitedStates and in the District of CoJumbia and , in prehearing, respond-ents denied responsibiJity for publishing certain of the exhibits con-

tetining such statements TR 8 and C 2 , 5 , RF 5).13. Through the use of the advertisements respondents have rep-

resented directJy and by implication:1) That by foJJowing the diebLry principJes set forth in the book

a woman will:(a, ) Lose weight 1\ithout reducing her c.aloric inhlke.(b) Protect her husband's heart or restore it to normaJ.(c) Increa.se her husband' s sexual poteney.(d) Be abJe to control the chemieaJ baJance of the body and dis-

tribnte chemicals within the body in a preseribed manner.2) That by following certain :formulas or inst.ructions set forth in

said book a "oman will:(et) Tighten the skin of the race and neck and elinlil1lte Joose face

and neck tissue.(b) Slenderize in 10 seconds.

(c) Acid brightness and clarity to the eyes.(d) Prevcnt baldness in her husband.

(e) Cure stubborn dandruff.

(f) Attain heaJth a.nd remain heaJthy.:J) Thwt the order in \vhich one eats food is important ,to heaJth.,,) That the cosmetics described in the book are naJuraJ and

llutritious.5) That the book contains hWldreds of marvelous secrets of heaJth.

G) That the exercises described in the book wiJ never be tiring to theone performing them. (CS 2A , B

14. Respondent has coneeded "that if counsel supporting the com-plaint did prcsent medicaJ testimony, such testimony wouJd supporttho following proposition : * * set forth and that respondents WOllld

not 11ave presented 111cdicn1 testimony to the contrary." Accordingly,the hearing examincr finds that:

The statements and repr sentQ,tions lImde in or implied by the ad-

verti.sing quoted in finding Tlumbers S ancll0 arc false , misleading anddece,ptive. In truth and in fact:

1) A person follO\ying t.he dictary principles in the book:(a) ",Yill not 10s8 weight without reducing his caloric intake.

FARRAR, STRAUS A)iD COMPA J I ET AL. 263

2G3 Initial Decision

(b) ,ViJ not protect his heart or restore it to nOI1nal , or have anyother beneficial effect upon his heart.

(c) ,Vi1J not increase his sexual potency.

(d) Wi1J not control the chemical balance of his body or distribute

chemicals within the body in a. prescribed manner.2) A person fo1Jowing the formulas and instructions in the book:(a) Wi1J not tighten the skin of his face and neck and wiJJ not

eliminate loose face :and ne-ck tissue.(b) ,ViJ not slenderize in 10 seconds or in any other period of time.(c) ,Vi1J not add brightness or clarity to his eyes.(d) 'Vill not prevent or retard baldness or excessive hair loss.(e) WiJJ not cure dandruff.

(f) 'ViJJ not rid himself of tension , or reduce or relieve tension.(g) Call10t rely upon attaining health or remaining healthy.

3) The order in which one eats food is not important to his health.4) The cosm t.ics described in the book are not natural nor arc they

nutritious.5) The book does not contain hundreds of secrets of health.6) The exercises described in the book may produce fatigue in the

person performing them. (C 7 , AA 4.15. Quite apart fr0111 the concession clescTibed in finding 14, the

advertising contains at least one pla.in misstatelnent of fact. It states:As a 1Jwtter of fact there is not a 1nention of calories in this whole

amazing book. On page 53 the book not only uses but italicizes theword calories in a quotation from Dr. :lIargaret Mead. :Ill'. Hauser doesnot c.ount calories in this book, it is t.rue, but prevents high caloric in-take in a different fashion. l-:e makes jt clear also in the book that he isin accord with the we1J recognized physical fact that weight must becontroJJec1 by food intake and its utilization in bodily activity. I-lismethod of reducing intake is placing elnphasis on proteins and on eat-ing and other habits 1)hieh he claims will reduce the desire for toomuch food. The implication obtained from the advert.ising is to thecontrary that no such reduction in intake is necessary if the regimenin Ithe book is foJJowed.

16. It is unnecessary to consider the effect of the dust jacket state.lnent.s because the implications from the advertising in the newspapersupplements is an adequate basis for testing the advertising. The onlyelement not present. in the newspa.per advertising which is in the

dust jacket is the phrase quoted in finding 8(a) above. (CX lA , 2A, 3A , 3B.)

17. Vv'hile the dust jacket purp01fs to quote from the book (seefinding number 8(e)) respondent has not pointed out a place where

the precise quotation appears. The quot.ation appearing in fiding

264 FEDERAL TRADE COMMISSION DECISIO


8(c) above is the closest to the statement on the dust jacket ",hich ",asfound by the hearing examiner. Considering the dust jacket as a wholethe hearing examiner infers from its appearance and content that.it is advertising matter and not all integral part of the book.

CONCLUSIONS

1. The Federal Trade Commission has jurisdiction over the per-sons of the respondents who are engaged in interstate commerce andover the subject matter of the advertising whieh took place in inter-state commerce.

2. X 0 question is properly raised concerning the First Amendmcntto the Constitution since thcre is no attempt to enjoin the publieat-ion

of the book

, "

l\lirl'ol' lirror on the 'Va11 " itself, but merely to preyentthe use of unfair and misleading methods of advertising to induce itssale.

3. 'While it is improbable that a person "ho is reasonably ,,' cJJinformed concerning diet and nutrition -yvoulc1 believe the l'epre cnta-tions made or implied in the advertising, such representations arecapable of, and would have a tendency to , mislead many persons whoare exposed to the newspaper supplements and other media in whichthe advertising appeared. It has been made abundantly clear that thetest with respect to false advertising is ';unlike that abiding faith",hich the Ja", has in the ' reasonable man . (I) liJt has ,"cry littlefaith indeed in the intellectual aeuity of the 'ordinary purchaser ' whois the object of the a,clvertising campaig11." 5 (Parenthetical mattersupp1ied in place of bracketed matter.

The impression created in these advertisements is that respondentsintended that they be taken seriously. Compare for contrast the Y01ks-wagen advertisement attached to Commissioner E1man s dissent in

il a1:J Carter PCl:nt Company, Inc. Docket 8290 dated June 28 , 1962.

4 Public Clearing HOll, se v. Coyne 194 U. S. 497 (1904) ; Donalrlson v. Read Magazine333 U. S. 178 (1948); E. F. Drew Co", Inc. v. C., 235 F. 2d 73 (2 Cir. 1956).cel't. rlenierl 3.;;2 "C. S. 969 (1957); MU1Tay Space Shoe Corporation

,.

304 F. 2(l270 (2 Cjr. 1962).

Ferleral Trade CommiRsion Y. SterUng Drug, Inc., 317 F. 2d 669 (2 Cir. 1963),opinion by JUdge Kaufman , p. 674; see also Donaldson Y. Read Magazine 333 U. S. 178. 1SS(194S) ; Pe(/eral '1'1"de Commi sion Y. Standal"a Ed1/cation Society, 302 U. S. 112 . 116(1937) ; Exposition Press, Inc. Y. Fellera! Trade C01n1ni, sion 295 F. 2(1 869 , 872 (2 Cir.1\)61), cel.t. rlenierl 370 U. S. 917; "Niresk Inrl'llstries , Inc. Y. J.' ederal Trade Commi,ssioH.278 F. 2d 337, 342 (7 Cir. J9(0), cert. clenied 364 "C. S. SS3 (1960); Book of the JfonthClub, Inc. FerlcraZ Tmrle Commission 202 F. 2d 486 (2 Cir. 1053). ce1:t. dismisserl 346

S. SS3; MOI"etrench Corp.

'"

Ferleral Trade Commission 127 F. 2d 792 , 70G (2 Cir.1942) ; Charles of the Ritz Di8tri-bntol" CMp. Y" Federal T1'ade CO?nm'ission 14.:: F. 2(iG76, USO (2 Cir. 1944); Zenith Rurlio Corp. v. 143 F. 2c1 29 , 31 (7 Cir. 1044) ;Hanr1ler The Control of False Adve1" tisi11g Under the Wheeler-Lea Act 6 Law and Camp.Pl'oblem , 91 , 9S (1939) ; Colgate-l'a7?no/ive Co. v. Fe(leral 'f'" ade C01nmission 310 F. 2(1

S9 (1st Cir. 1962) ; ulso second opinion 326 F. 2d 517) (1963) A" ATRH, Xo. 128,p. X- , December 24 1963.

FARRAR ) S'l'HAUS AND CO:\'lPA:\'Y) IXC.) ET AL. 265


From the ca.ses ,YC infer that the public interest requires protectionof the credulous and hopeful beaut.y seekers to ,,"hOll the adverti5ingmight be particularly attractive; even though no such protedion isneeded for their scholarly sisters who 'would not believe that any bookcould bring about the results implied from this advertising.

4. Hespondent Farrar admits responsibility for the dust jacket ofthe book but claims it is a part of the book. The hearing examiner hasfound as a fact that the dust j aeket is not an integraJ part of the bookbilt rather advertising prepared for the purpose of its sale. The in-ference is properly drawn from an examination of the dust jacketand other matters of record in this case. WitkoweT P'l'es8 : Inc. : et al.57 F. C. 145 (1960). In modifying the initial decision in an opinionby Commissioner Anderson, the Commission made the followingobservation at page 218 , fn. 3 of that case: ": , ':' * From our inspec-tion of the jackets, we note them to be eye-aTresting and attractiveand clearly designed to attract the attention and interest of prospectivepurchasers. The covers have included hmdatory expressions by 1'e-

vjc"ers and others for the obvious purpose of inviting and inducing

sales in book stores and when 111ade available at the c10se of the au-thor s lectures in various eitics. ,Vc think that the evidence rec.ei,-of record clearly supports inferences that the statements and repre-sentations appea.ring on the paper covers constituted advertising mat-ter under any reasonable standards and interpretation applicable tothat term. " This decision was appealed to the Court of ppe"ls forthe District of Columbia and dismissed by agreement X ovember 301960. (VI. S & D. SH not otherwise reported.

Hesponc1ents ' citation of Ii: oussevitzky v. Allen, Town c(. II eath lS8)Iisc. 479 (1947) aft' d. 272 App. Div. 759 , is not apposite. That case wasone arising under the civil rights law of New York. That statute G pro-

tects t.he right of privacy of an individual against the pub1ication ofpictures without eonsent for the purpose of ach-ertising and trade.It ,,,as held to have no application to biographies of a public figure.Sidi8 v. F.R. Pnb. 001'1'. 113 , F. 2d 806 (2 Cir. 1940) and the achertis-ing of such a biography was held to be ineluc1ec1 in the exception. Iore-oyer, in his opinion the late J uc1ge Shientag clearly recognized thata dust jacket on a. book \Tas advertising. He said: ;' The book c.ontflinspictures of him whieh he says are used without his permission , andit has the usual puffing or Oe'lt7:sing cov( r jacket." (Emphasis sup-plied. ) Later he said: (; Since the biography does not fall yithin Sec-

tions 50 and 51 , neithcr do the advertisements or announcementsthereof. (id 484.

, 51 Cjvil Rights La'\ of the State of Xew Yor);:.

313- 121--70--1 S

266 FEDERAL TTIADE CO:\B:nSSIOK DECISIONS

Initial Decision 65

5. The use by the respondents of the false , misleading and deceptiveadvertising for which they were jointly responsible has had and nowhas the tendency a,nd capacity to mislcad and deceive members of thepurehasing public into the erroneous and mistaken belief that snchstatements 'were and arc true and into the purchase of the book::lll'rol' , :Mirror on the 'Vall" published by respondent Farrar. The

dust jacket for whieh Farrar was responsible had ancl has the sametendenc.y and capacity to deceive.

6. The aforesaid acts and practices of respondents as herein setforth in the foregoing findings of fact, ,,,ere and are, all to the preju-dice and injury of the public and of respondents ' competitors andonstitute unfair and deceptive acts and practices in eommerce , in vi-

olation of Section 5 of the Federal Trade Commission Act.7. The Federal Trade Commission by joining respondent Sussman

has made a determination that under the facts alleged in the com-plaint such advertising agoney should be made a respondent alongwith respondent Farrar , the publisher. The differcnce between thefacts alleged and those estnblished is so slight that t.here is no reasonto believe that the Commission , had it been aware of such divergence"ould have failed to join respondent Sussman in the complaint invie,,, of the concessions in the amended ans"cr and stipulation. Itis a lTfttter of the soulld discretion of the Commission to determine\\"hether or not to join an advertising agency. The joint responsibilityhere conceded makes it appropriate to do so.; Particularly in t.he caseof a book ,vhich is aVfliJablc for all to read therc is "no l'e,ason "hyadvertising agencies , '" * should be, able to shirk from at le.astprima. facie responsibility for conduct in "hich they participate.

8. Respondents attack the form of order proposed by the Commis-sion and served "ith its complaint (see Respondents Icmoranclunldated.January 21 1961 , pp. 8-11 and Rcply Memorandum dated Jan-uary 29 , 1964, pp. 5-7). In their first memorandum rcspondents aJlegethat the order is too broad becausc: (1) there was only one offense withrespeet to one book, (2) the language preventing advertising of otherbooks "of the same or approximately the same content, maierial andprinciples " is so vague it cannot be ppJied by respondents and, (3)

as to Sussman it should bc limited to books written by IIauscr. In theirReply J\Iemoraudmn respondents claim: (1) that any order with

rcspeet to Sussman should not include statements on the dust jacket

';

Colflate-Palmolive Co. et a/. 1'. 310 F. 2d 89 (1st Cir. HH;2), see also latcr opiniondated December 17 , 19G3, B A, ATRR o. 128 p. X-I; O. Howa1' d Hunt Pen Co. v.

J97 F. 2d 273 , 281; Oharles A. Brenner Sons Y. 158 F. 2d 74 (6th Cir. 1946) ;Carter Products, Inc. v. '1' 323 F. 2d 523 (5 Cir. 1963) ; Bristol-Myers Co. et al.46 P. C. 162.

S Opinion of Judge Aldrich, p. 12 of Slip Opinion. Oolgate-Palmolive C01npU11y Y.

:Ko. 6145, dated December 17, 1963. nNA. ATRR No. 128 P; X-

FARRAR, STRAL- AND COMPANY, IXC.) ET AL. 267

2;: Initial Decision

in "hich it did not participate, (2) the order should prevent mUTep-re-8cnting and (3) the order should be restricted to the very book aelver-tised or to books by the same author.

The Supreme Court in Hnberoid' made it clear that the Commis-sion in the exercise of the powcr which Congress envisioned could notbe required to "eonfine its roadblock to the narrow lane the transgres-sor has traveled; it must be a110wed effectively to close a11 roads to theprohibited goal , so that its order may not be by-passed with impug-nity." The First Circuit in its second Colgate-Palmolive opinionalthough it expressed dissatisfaction with the Comrnission s ordercontinue(dJ to believe that we should not comment on the precise

terms of an order in vacuo. Thus we have a clear and current diree-tion that the Commission must be permitted to determine what ordersshould issue to effectively prcvent continuation of unlawful conduct.So long as they are " suffciently cIear and precise to avoid raisingserious questions as to their meaning and application. " 11 It has pro-poscd an order with the compJaint and that order should be entered ifjustified by the facts established and not subject to legal infinnitiesdiscovered after the issuance of the complaint." 1'Vith these principlesin mind 'ive consider respondents ' objections.

The objcctions that would limit the ordcr to advertisements of thes,une book or those by the same author cannot be sustained. Last yearbest se11er, like yesterday s newspaper affords littlc tcmptation to theadvertiser. There ",ouJd probably be no need for such an orderat all. Thc next objection rclating to the books ",hose advcrtisingT\ould be covcred suggests that respondents Hre unable to deter-mine \yhether they are "oI the same or approximately the samecontent, material and principles." By reading the books publishersand advertising men should certainly be able to determine their sinli-britO'. Moreover , their obligation at most is to supply truthful adver-tising copy ",hich they ",auld in any event be bound to supply. Theobjections which ",ould pbce Sussman in a favored position appearwho11y unjustified. The fact that it did not happen to utilize the repre-sentations eonccrning " tension" in the advertising for which it wasresponsible docs not make it likely that it would not do so in light ofthe dust jacket statement which it must have Jmo",n about. This roadalso shou1c be closed. To prepare honest advertising COpy it muststudy the book and it should be no hardship to prepare honest adver-tising on the basis of such a study.

l'. G. Ruberoid 00. 343 "C. S. 470, 473 (1952).lDOplnian by Judge Aldrich , December 17 1963, No. 6145. ENA. ATRR No. 128, p. X-'1. F. '1' G. v. Hem.y Brach", Go. 368 U.S. 360, 368 (19G2); Country Tu;ccds, Inc.

SlJp Opinion p. 574 (2d Cir. January 3 , 1964).:c Compare Win8ton Sales Co., Inc., Docket 8531, Order dated 'Xovember 22, 1963

(G.'!F. 1456J.

268 FEDEHAL THADE COMMISSION DECISIONS

Inital Decision 65 F.'l'.

The final objection that only misrepresentation should be prohibitedrequires no change in the proposed order. It has been conceded that

the repre,sentations prohibited constitute misrepresentations. Theywould be misrepresentations of any book "of the same or approxi-mately the same content, materjal and principles." In the unlikeJyevent that a book of the same content should effect a cure through somechange in the human animal theordcr would clearly be subject to im-lnediatc revision.

9. The foJJowing order should be issued.

ORDER

It is onlel'ed That Farrar, Straus and Company, Inc. , a corpora-tion , and its offcers, and Sussman and Sugar, Inc. , and its offcers, andrespondents' representatives, agents and employees, directly orthrough any eorporate or other device, in connection with the offeringfor sale , sale or distribution of a book entitled " l\1:rror, ::1irror onthe WaJJ" 01' any other book of the s"me or approximately the samecontent , material and prineiples, whether sold ul1der the same name orany other name, in commerce, as "commerce" is defincd ill the FederalTrade Commission Act, do forthwith cease and desist fr0111 represent-ing direetly or by implication:

1. TJmt by foJ1owing the dietary principles set forth in the booka person "ill :

(a) Lose "weight w"ithout reducing his caloric intake.(b) Protect his heart or restore it to normal : or have any other bene-

ficial effect npon his hea.rt.(e) Increase his sexu"l potency.(d) Control the chemical b"bnce of his body or distribute chcmicals

\\-

it.hin his body in a prescribed manner.2. That by fol1owing formulas 01' instructions set forth in said book

a person "in:

(a) Tighten the skin in the face or neck , or eliminate loose face orneck tissue.

(h) Slenc1e.rize in 10 seconds, or in any other period of time.(c) Add brightness or clarity to his eyes.(d) Preycnt or retard ba.lc1ness or excessive hflir loss.(e) Cure dandruff.

(f) Hid himself of tension , or rec1necd or relieve tension.(g) Become healthy 01' renmin healthy.3. That the order in which one eats food is impOl' tant to health.

4. That the cosmetics described in the book are natural 01' nutritious.

5. That the book contains hundreds of secrets of health or that itcontains any health secret.

FARRAR, ST'HAUS AND CO:\PA1\TY, IXC. , ET' AL. 269

Decision

6. That t.he exercises described in the book will never be tiring to theperson" ho performs them.

DECI,qOX OF THE CO)BIISSIOX A: m OnDEn TO FTL:t REPOHT OF

COMPLIANCE

The Commission haying considered the initial clecision of the hearingexaminer filed February 11 , 1964 , and

It appearing that the init.ial decision contains a number of errors , andThe COllnnission being of the opinion that these errors should be

correded:It is Of de red That the initial decision be , ftnd ,it hereby is , modified

Ly striking the language in parentheses follmying paragraph 1 01' t.he

Findings of Fact and substituting the follmving: (C 1 , admitted byfai1l1c to deny, AA; RF 1; see CF 1).

it is fndhei' ordered, That the language in parentheses iollmying

pnragraph:2 of the Fin(lings or Fad be stricken and the follmying sub-stituted: (C 1 , admitted by hilure to deny, AA; RF '2; see CF '2).

It ,;s fur-t7w)' OJYlel'ed That the language in pa.rentheses followingpa.ragraph ;3 of the Findings of Fact be stricken and the follmying sub-stitnted: (C 1 , adm ;ttedp,"A 1; CF 3; see RF 3).

It is filitllel' o1Ylej'ed That the language in parentheses foll0\Yingpill'ap:rnph 7" of the Findings of Fact be stricke,n and the follmyingsubstitllted: (C 4 , admitted by fai1nrc to deny, A , AA; CX 'lA , B , C,andD:CXoo B).

It ;8 .TUj'thfi' mylered That the onls "Respondent has : in the first.sent.ellce of paragraph 1 1 of the l; inclings of Fnct be s rickell and the\yol'-ds " RC'sponc1ent s ha.Ye ' be substituted thereJor.

It -islni'hci' O-'deTed That subsection 2(f) of par:lgl'flph 14 of theFindings of Fact be, stricken and subsection :2 (g) of paragraph 14 beredesignatec12 (f).

It '/s fU'i'thel' o,'dei' That paragraph 15 of the Findings of Fact bemodified by stri1dng the sentence beginning ")11'. Flanser does not countcalories , :1ncl substituting therefor the :following: " )11' Hnnscl' doesnot connt cC\10rics in this book, it is trne , but rHlyocates the preyentionof high ca,1oric intake ,in a clinerent fashion

It is .fudhm' ordered That the first sentence of paragraph 17 of theFindings of Fact be modified by the insertion of the ,yard "Farrarfollo,ying rhe word respondent..

It " S il!i'lie'i O''deJ''.d That subsection g of paragraph S of the Con-clusions jn the initial decision be modified by striking the sentencebeginning "The ,objections \\hich wou1c1 place Sussrmm" and thesucceeding three se.ntences c.omprising the remainde.r of that subsection.

270 :FEDERAL TRADE COMMISSION DECISIONS

Complaint 65 F.

It ig ful'hel oTdn' That paragraph 2 of the Order in the initialdecision be modified by striking subsection (f), and that subsection (g)

be redesignated (f).It is f"dhel' onleTed That the ,initial decision as modified by this

order, be and it hereby is, adopted as the decision of the COl1nnission.It is fll1'tho' opdeTed That respondents shaH , within sixty (60) days

after service upon them of this order, fi1e with the Commission a reportin writing, setting forth in detail the manner and form in which theyhave complied with the orclerto cease and desist.

IN THE J\L-\TTEH OF

ADVAXCED QUILTIXG AND BATTING CORP. ET AL.

cox SENT ORDER , ETC. , IX REGAnD TO THE . \LLEGED YIOL..o\.TIOX OF THE FED-

ERAL TRADE CO::BIISSION XXD THE WOOL PRODVCTS L\BELTNG ACTS

Docket 0-"134. ComZJlaint, April.9 , 1.9G4-Dr:C'sion , AprIl , 1964

Consent order requiring Brooklyn, N.Y. , manufacturers of wool products to ceaseviolating the \Yoal Products Labeling Act by ,such vractir.es as labeling andinvoicing as "90% Reprocessed Wool , 10% other Fibers" and "60% Reproc-essed \\ ool, 40% Other Fibers , Quilting mate-rials ,vJ1icJ1 contained :onb-stantially different fibers and amounts than represented. and by fnilngto lauel certain materials with required fiber content.

COl\IPLAIXT

Pursuant to the provisions of the Federal Trflde Commission Actand the "\Vool Products Labeling Act of 10;J0 , and by virtue at theauthority vested in it by sflid Acts , the Federal Trade Commissionhaving reason to believe that Advanced Quilting and Batting Corp.a corporation , and Rubin Partel , Mark Ze1k(mitz , and Joe Rosenthalindividually and as officers of said corporation , hereinafter referredto as respondents , have violated the provisions of the said .Acts fmc1

the RuJes and Regula'tons promulgated under the 'V 001 Products1,beling Act of 19:19 , and it appenring to the Commission that a pro-

ceeding by it in respect thereof woulc1 be in the public interest., herebyissues its complaint stating its charges in that respect as follmn:

PARAGHAPII 1. Respondent Advanced Quilting and Batting Corp.is a corporation organized , existing and doing business uncleI' and byvirtue ofthe laws of the State of New York.

Individual respondents Rubin Partel 1al'k Zelkowitz , and .J oe

H.osenthal arB offcers 01' said eorporation and cooperate in formnlnt-

ADVANCED QUILTING AND BATTIKG CORP. ET AL. 271

270 Complaint

ing, directing and controlling the acts , policies and practices or cor-porate respondent including the aets and practices hereinafterreferred to.

Respondents are manufacturers of wool products with their offceand principal pla.ce of business located at 43-- 7 Bogart Street, Brook-lyn 6 , New York.

PAR. 2. Subsequent to the effective date of the ,V 001 Products Label.ing Act of 1939 , respondents have manufactured for introcluetion intocommerCB, introduced into commerce, sold, transported , distributeddelivered for shipment and oifered for sale in eommer(:c as "commerceis defined in said Act , "\yool products as " ool product" is deIined

therejn.PAR. 3. Certain of said wool products wcre misbmnded by the

respondcmts within the intent and meaning or Section 4(a) (1) of the

,V 001 Products Labeling Act of 1939 and the Rules and Regulation::promulgated thereunder, in that they were falsely and deceptivelystamped , tagged, labelcd or otherwise identified with respect to the

character and amount of the constituent fibers contained therein.Among such misbranded wool products, but not limited thereto

were quilting materials stamped , tagged , or labeled as containing 90%Hcprocessed ",Vool , 10% Other Fibers, and 60% Reprocessed \Voo140% Other Fjbers, whereas in truth and in fact, said quilting matc-rials contained substantially different fibers and amount of fibers thanrepresented.

PAR. 4. Certa.in of said \\001 products were further misbranded lJycspondents in that they were not stamped , tagged , labeled or other-

wise identified as required under the provisions of Section 4(a) (2) ofthc vVool Products Labe1ing Act of 1939 and in the manner and formas prescribed by the Rules and Regulations promulgatecl undersaid Act.

Among such misbra.ncled wool products, but not limited theretowere certain quilting materials with labe.ls on or affxed theret.o T\hichfailed to disclose the percentage of the total fiber weight of thc ,molproduct, exclusive of ornamentation not exceeding 5 percentu11 ofsaid total fiber weight, of (1) woolen fibers; (2) each fiber other thanwool if said perecntage by "\\eight of such fiber is 5 perccntllll or more:(3) the aggregate of a11 other fibers.

PAR. 5. Certain of said wool products were misbranded in violationGf the ,Vaal Products Labe1ing Act of 1939, in that they were not

labeled in accordance with the Rules and Regulations promulgatedthereunder, in that information required undcr Section 4(a) (2) ofthe ,Vool Products Labe1ing Act and the Rules and Regulations

prOlnulgatecl thereuncler "\yas set forth on labe1s 1n abbrevintpcl formin violation of Rule 9 of said Hules and Regnlations.

272 FEDERAL TRADE COM:vrSSION DECJSIOKS

Decision finel Order 65 J.

PAR. 6. The acts and practices of the respondents as set forth a,bovewere , and are in violation of the "\1'001 Products LabeJing Aet of 1939and the R.ules and Hegulations promulgated thereunder, and consti-tuted , and now constitute , unfair and deceptive acts and practices andunfair methods of competition in commerce" withill the intent andmeaning of the Federal Trade Commission Act.

-\r:. 7. Respondents in the course a,nel conduct of their business , asaforesaid , haTe Inade statements on invoices and shipping memorandato their customers misrepresenting the fiber content of certain of theirsaid products.

Among such misrepresentations, but not limited thereto

, "'

erestatements representing the fiber content thereof as 90% Reprocessed'1'001 , 10% Other Fibers and 60% Reprocessed "\1'001 , 40% OtherFibers , "herens in truth and in fact, said quilting materials containedsnbstantiaJly different fibers and amounts of fibeTs than represented.

\T. S. In the course and conduct of their business, respondents nowcause and for some time . last past , have can sed their sftid products

,,-

hen solc1 to be shipped from their place of business in the State ofNeT\ York to purchasers located in various other states of the UnitedStates a,ndlnaintainec1 a substantial course of trade in saiel pl'cc1llets

in commerce , as "commerce :: is defined in the Federa.l Trade Commis-sion Act.

\R 9. The acts and practices set out in Paragraphs Seven and Eighthave had and no,y ha.ve the tendency and eapacity to mislead anddeCe1YC the purehasers of said produets as to the true content thereof

and to cause them to misbrand products sold by them in which Sa1(

materials \\-e1'e used,1=_\1. 10. The aforesaid acts and practices of respondents as herein

aJlegN1 , ,yere and are all to the prejudice and injury of the public andof respondents ' competitors and constituted , anclnCHV constitute, unfairrnethods of competition in COlnmel'Ce, and unfair and deceptive acts

and practices in commerce within the intent anc1mean1ng of the Fed-eral Trade, Commission Act.

DECISIOX AXD ORDER

The Commission haying heretofore determined to issue its complaintcharging the respondents named in the caption hereof with violationof the ,1'001 Products LabeJing Act of 1939 and the Fcc1cra1 TradeCommission Act , and tho respondents having been served with noticeof said determination and T\ith a copy of the complaint the Commissionintended t.o issue together ith n. propo:3ed form of order; a.nd

The respondents and counsel for the Commission haying thereaftercXl' cntec1 an agreement containing a consent order , an admission by

ADVANCED Q1:ILTI::W A:\D BATTING CORP. ET AI 273

270 Decision and Order

respondent.s of all the jurisdictional facts set forth in the complaint toissue herein , a statement that the signing of said agreement is for set-tJement purposes only and does not. constitute an admission by respond-ents that the law has been violated as set forth in such complaint, andwa, ivers and provisions as required by the Commission s rules; andThe Commission , having considered the agreement, hereby accepts

same, issues its complaint in the form contemplated by said agreement., makes the following jurisdictional findings , and enters t.he fol-lowing order:

1. Respondent Advanced QuiHing and Batting Corp. is a corpora-tion organized , existing and doing business under and by virtue of thelaws of 1,he State of Xew York \yith its offce and lJ1'ineipa.l place ofbusiness loc.ated at 4:-3--7 Bogn,rt Street , Brookl;yn G ew York.

Indh-idual respondents TIubin Partel , :.lark Zelkowitz, and JoeRosentha.l are officers of said corporation ancl their address is the sameas that of said corporation.

2. The Federal Trade Commission has jurisdiction of the .subjectmat;ter of this proceeding and of the respondents, and the .proceedingis in the public inte.rest.

QIWER

It is onlered That respondents Advanced Quilting and BattingCorp. , a corporation, and its offcers , and R.ubin Partel , :Uark Zelko-witz, and Joe Rosentha.l , individually and as offcers of sa.id COl'poration , and respondents ' representatives , agents and employees , direetlyor through any corporate or other device, in connection with the intro-duction or ma.nufaoture for introduction intO commerce, or the ofl'e.ringfor sale, sale, transportation , distribution or delivery for shipment incommerce, of wool inte.rlining material or other \\oolpl'orlucts , as

commeree" and " wool product" tre defined in the ,V 001 ProductsLabeEng Act of 193D , do forth\yith cease and desist frOll1::Misbranding such produets by:

1. Falsely and deceptively 'stamping, tagging, 1abeling or olhe.r-\yise identifying such produets as to the character or amount ofthe constituent. fibers contained therein.

2. Failing to securely affx to , or ,place on , en,ch snch product

a stamp, tag, label , or other means of identification showing in adeal' ancl conspicuous manner cadI clement of information 1'e,qui red to be disclosed by Section 4(a) (2) of the ,1'001 Pror1ucts

Labeling A.ct of 1939.

3. Setting fOl th information required under Section 4(a) (2)of the ,1'001 Products Labe1ing- Ad of 1939 and the Rules audRegulatiolls lirornlllgatpd therennder ill abbreviated 10rm onlabels affxed to \Yool products.

274 FEDEHAL TRADE COMMISSION DECISIONS

Complaint 65 F,

It is fu.rth€l' ordered That respondents Advanced Quilting and

Batting Corp. , a corporMion, and its offeers, and Hubin Pal'tel , :Mark

ZelkO\vitz, and Joe Rosenthal , indiviclllally and as offcers of saidcor,poration, and respondents ' representatives , agents and employeesdirectly or through any corporate or other device., ill connection withthe offering for sale , sale or distribution of interlining material or anyotheT texr.i1eproducts in commerce, as ;;com,merce :' is defined in theFederal Trade Commission Act , do forthwith cease and desist frommisl'cpresentjng the eharaeter or amonnt of constituent fibers con-tained ill quilted interlining material or any other textile ,products on

inyoiees or shipping memoranda applicable thereto or in any othermaImer.

Itls .T1utlu3I ordered That the responclents herein shall , within sixty(00) days after senice upon them of this order, file with the Commis-sion a report in writing setting forth in det.ail the manne,r and fonn illwhich they have complied ,vith thi 3 order.

Ix THE J\IATTER O:F

ESTEE SLEEP SHOPS , IXC" ET AL.

ORDER ETC. : IX REGAlm TO THE .\LLEGED 'Jor \TIOX (JF TIIl' EDERAL TRADE

CO:\DIlSSIOX ACT

Do("7. et 8569. Compla'int , Jlay 1963-Decision , Apri/ , 1964

Order reQuiring ruannfnetllrers and distributors of bedding and furnit.lln.' ofChicago, Ill. to eea.",,, mal lng decf'pt.iYe snYings claims in nc\\.spaper ad-yertiSl' llwnts by" use of retail price comparisons , and clecepti\-ely gnilrnntee-lug their mA.ttresst's.

CO:CIPLL\IXT

':'

PUr nallI- to the proYisions of the Federal Trade Comn1ission Act,and by virtue of the authorit.y vested in it by said Act , the FederalTrade Commission having reason to believe. that the parties respond-ent named ir; the caption hereof , hereinaftel' referred to as respond-ents : h,rve violated the provisions of said Act , and it. appearing to the

"This complaint was amenr1ed by order of hearing examiner dated Oct. 7 . 1963. )1r

striking therefrom the folluwing nine non-existent corporate respoD(lents Dnmed herein

and substituting therefor Estee Sleep Shops, Inc. : Ashland Estel' Sleep Shop, Iuc.esterD Estee SJeep Shop, Inc.. Iilw nkee AveIHil' Estee Sleep Shop, Iuc. , Central Estel'

Sleep Shor. IDC. , Harlem Estee Sleep Shup. Inc.. 21st Street Estel' Sleep Shop. Inc. . 6.3rdStreet Estec Sleep Shop, Inc. . 95th Street Estee Sleep Shop, Inc. , Hammond Estce SleepShop, Inc.

ESTEE SLEEP SHOPS, IXC., ET AL. 275

274 Complaint

Commission that a proc.ceding by it in respect thereof ould be ill thepublic interest , hereby issues its cOlllplaint stating its charges in thatrespect as follows:

\RAGRAPH 1. Respondents Ashland Estee SJeep Shop, Inc. , IVest-ern Estee Sleep Shop, Inc. , :VIilwaukee Avenue Estee Sleep Shop, Inc.CentraJ Estee SJeep Shop, Inc. , HarJem Estee Sleep Shop, Inc. , 21stStreet Estee Sleep Shop, Inc. , 63rd Stre t Estee Sleep Shop, Inc. , 95thStreet Estee Sleep Shop, Inc. , and Estee Bedding Company are cor-porations organized existing and doing business under and by virtue ofthe Jaws of the State of Illinois, and are locatcd in Chicago , IJlinois.Their principal offce is at 2400 IYest 21st Street in the city of ChicagoState of IJJinois. AJI of the abo"e-1Utmed corporate respondents exceptEstes Bedding Company also maintain an offce in R.oom 845 , 29 SouthLa SaUe Street , Chicago 3 , IJJinois. Estee Bedding Company aJsomaintains an offee at 2414 'Vest 21st Street , Chicago , Illinois.

Hespondent Hammond Estes Sleep Shop, Inc. , is a corporation or-ganized existing and doing 'business under and by virtue of the Jawsof the State of Indiana , and is located in I-Iammond, Indiana. ItsprincipaJ offce is at 2400 IV est 21st Street in the city of Chicago , Stateof IJJinois. It also maintains an of!ice at 1511 :Vlerchants Bank Build-ing, Indianapolis 4 , Indiana.

R.espondents Samuel Trossman , :l\arvin Trossman , Harold Tross-man a.nd Norman Trossman arB individuals and offcers of e.ach cor' po-rate respondent herein named. Their address is 2400 IV est 21st Streetin the city of Chica, , State of Illlnojs. They formula, , direct andcontrol the acts and practices of nIl the corporate respondents, includ-ing the acts and practices hereinafter set forth. They dominate fmd con-trol eaeh corporate respondent to such an extent that ea.ch corporationis unable to formulate policy inde,pendentJy and each corporationseparate corporate identity is no more thana, sham.

PAR. 2. Respondent Estee Bedding Company manufactures beddingand assembles furniture. Eac.h of the other corporate rC8pondents

sells bcdding llnd fllrniture at retail. They take orders for furnitureand forward such orders to the executi,-e offce at 2400 IVest 21st StreetChicago , IJlinois. The merchandise ordered is then sent from the sokwarehouse, which occupies the same premises as the factory, 2400 'Vest21st Street, Chicago, Illinois, to the customer.

The corporate respondents , other than t.he Estee Bedding Companyalso sell at retail furniture not manufactured by the Estee BeddingCompany, but which is ordcred from othe manufacturers by the exec.u-

ti"e offce at 2400 IVest 21st Street, Chicago , IJJinois. They 'take ordersfrom customers for this furniture and forward such Ol:ders to the

276 FEDERAL TRADE COMMISSION DECISIO::TS

Complaint 63 F.

executive offce. The merchancli.se ordered is then sent fl'Olll the ymre-house to the customer. None of the corporate respondents , except the.Estee Bedding Company, stock bedding' or furniture , except for sam-ples. They function as showrooms.

PAR. 3. Each of the corpon1Jte respondents has accepteel orders fromcustomers who reside outside the stftte where it is located and hascaused the executive offce to ship the nlcrehanc1ise ordered or cause

it to be shipped frOln the factory and warehouse located ill 111inoi;.to the customer located outside the State of IJlinois. In the case of theHammond Estee Sleep Shop mcrchandise has a Iso been shipped fromthe faotory and warehouse in Illinois to customers located in Indiana.This continues to be the manner in \vhich sales and shipments are madeby the corporate respondents. Thus eaeh of the corporate respondentsmaintains, and at aU times mentioned herein has malntn incc1 , (1. sub-stantial course of trade in bedding and furniture in commerce , as

commerce" is defined in the Federal Trade Commission Act.In rcality the corporate respondents haye not operated flJlcl (10 not

operate as independent inc1iyidl1al corporations but are components ofone business entity operated as a vertically integrated operation domi-nated and controlled by the respondents , Samuel , l\Iaryin , ITarold anclKorman Tl'OSSmall , \yhich maintains, and at aU times mentiOlwd hereinhas maintained , a substantial course of trade in bedding and furniturein commerce, as "commerce" is denned in the Federal Trade Com-mission Act.

PAn. 4. In the course and conduct of their business , and for the pur-pose of indueing the sale of said bedding and furniture , respondentshave placed or ca,used to be placed advert.isemcnts in ne\yspa,pers ofgencral eirculation. The following statements from the aclyertisementsare typical but not all inclusive:

Kroehler Foam Cushioned Sofa and Clmir Sayc SGO Decorator designedGet yours today at Estee, only $149.

Pc Be(room Snite * .. 0: At Estee, yours for only $149.88. Sa.e $60Handsome Decorator Living Room 2-Piece Sofn 311(1 Chair 8uite U:!. 8::.Save $45

Imported Danish Style RoomGronp for Ea y Relnxatiol1-Foam LonDge_____--

----------- -------

STD. D:JI"ll1cha i l' - -

- - - - -- - --- - - - - - - - - - - - - --- - - - - - - - - - - - - - - .. - - -

Rorker - - --

- - - - - - -- - - - - - - - - -- -- - - - -- - - - - - - - - - - - - -- - - - - -

60" Slat Rench____

--- - ---- - - - -

30.40. n;J

. $).

Total -

------ ------ ------ - - - ---- ----

18D. SO

Yon pay only --

------- --- --------

- - 119. SS

---

Sale ---

.._- ------ ------- - --

!'G!l. D2

All for only 811D.

ESTEE SLEEP SHOPS) INC.) ET AL. 277

Complaint

PAR. 5. Through the use of t.he aforesaid statements the respondentslu",e represented , directly 01' indirectly, that:

1. The respondents usually and customarily sold the J\:l'oehler foamcushioned sofa and chair for $209. 88 in the recent regular course of

their business and that a saving ,\yould be made of 860.2. The respondents usually and customarily sold the three piece bed-

room suite for $209. 88 in the recent regular course of their businessand that a saving would be made of 860.

3. The respondents usually and customarily sold the two piece sofaand cha,:ir suite for $184.95 in the recent regular course of their .businessand that a saving would be made of $45.

4. The respondents usuaJJy and customariJy soJd the Danish styleroom group for $18D.80 in the recent regular course of their business

and that a saving would be made of $69.PAH. 6. In truth -and in fact the respondents have not regularly

sold the items listed in Paragraph Five at the prices stated thereinnel the savings stated therein ,youlcl not be made. The.refore the state-

ments and representations referred to in Paragraphs Four and Fiveare false., misleading and deceptive.

PAR. '7. In the course and conduct of their business the respondentsluwe made the following guarantee statmnents in their newspaperac1vert.ise.nents of their mattresses:

5 Year Guarantee5 Year 'Written Guarantee

*15 Year Guarantee*)0 Year Guarantee

':.

10 Year 'Vritten Guarantee

A footnote to these statements in each advertisement explainsshould mattress become unserviceable to original purchaser from

110rmnJ u , free repairs will be madePAR. 8. In truth and in fact the guarantee card whieh accompanies

a Inattre.ss bears the statement that the purchaser Inust:1. Fill out and mail in the guarantee stub portion of the card to

tho Estee SJeep Shops ,, ithjn thirty clays of purchase.. Use the mattress on an Estee foundation.

3. Pay all costs of tra,nsportation and handling.These statements a.re not disclosed in the respondents ' advertising.

Therefore the statement.s and representations referred to in ParagraphSeven are false, mislea.dingand deceptive.

PAR. D. In the conduet of their business, at all times mentionedherein , respondents haye been in substantial competition , in commereewith corporations , firms , and individuals in the sale of bedding andfurniture of the same general kind and nature as that sold byrespondents.

278 FEDERAL TRADE COMMISSION DECISIOl\S


PAR. 10. The use by respondents of the aforesaid false, misleadingand deceptive statements , representations and practices has had , andnow has, the capacity and tendency to mislead members of the pur-chasing public into the erroneous and mistaken belief that said state-ments and representations were and are trne and into the purchnse ofsubstantial quantities of respondents ' proc1ncts by reason of saiderroneous and mistaken belief.

PAR. 11. The aforesaiel acts and practices of respondents, as hcroinaJleged , were and are aJJ to the prejudice and injnry of the publie andof respondents ' competitors and constituted , and now constitute, unfairmethods of competition in commerce and unfair and deceptive actsand practices in commerce, in violation of Seetion 5 of the FederalTrade Commission Act.

11fT. Wiliam, A. Somers and 21fT. RobeTt A. Mattina supporting thecomplaint.

Ruslein and Rosenbaum of Chicago , 111. , by Harr H. Ruskin forrespondents.

IXITL\L DECISION BY 1V"ILLIA):I Ie. JACRSQX , I-IE.-\RIXG EXAl\II

This proceedjng was commenced by the issuance of a complainton )1:ay 9 , 1963 , charging ten named corporate respondents and fourna.med individual respondents, individually and as offcers of said

corporations, with unfair and deceptive acts and practices anclul1fairmethods of compet.ition , in commerce, in violation of Section "5 of theFederal Trade Commission Act by making deceptive pricing, savingsand guarantee claims for their bedding and furniture.After being served with the said complaint, the four individual

respondents a,nd one of the corporate respondents , Estee BeddingCornpany, appeared by counsel and t.hercafter fiJed their joint ans\Ycradmitting a number Df the specific allegations in the complaint , butdenying generally the illegality of the practices charged in the com-plaint. In addition , the ,'cspolldcnts specifica11y denied the existenceof the other nine corporations named in the complaint and affrma-tively alleged "that the business heretofore ca.rried on by said respec-

tive corporations (herein called Estee retail store corporations) isnow carried on by Estee Sleep Shops , Inc., an Illinois corporation.":

A pre11earing confcTence ,yas held in this matter on August 261963 , nt which such matters as the stipulation of uncontested factsexchange of lists of documents ) and witnesses , allthentlcntion of docu-ments , amenc1mpnt of the complaint , etc. , were djsel1ssec1.

On September 10, 19G3 complaint counsel filed a motion to amendthe comphdnt to strjke therefrom the first nine corporations named

ESTEE SLEEP SHOPS , I),TC. , EI' AL. 279


in the caption and substituting therefor the Estee Sleep Shops , Inc.In support thereof and attached thereto , cOllP1aint counsel supplieddocumentary evidence including eertificates of the State of IllinoisOffce of the Secretary of State, establishing that the first five andthe seventh through ninth corporations named in the caption of thecomplaint merged into 21st Street Estee Sleop Shop, Inc. (the sixthcorporation named in the complaint) on :March 1, 1963 and on)1:arch 19 , 1963 the name of the surviving corporation "21st. StreetEstee Sleep Shop, Inc. " was changed to Esteo Sleep Shops , Inc. Sincethe proposed amendment did not enlarge the scope of the proceedingsbut merely deleted non-existent corporate respondents, the hearingexaminer on October 7, 1963 granted the Motion to Amend theComplaint.

A..t the comnlenccment of the hearing held at Chicago , Illinois onNovember 19 , 1963 , counsel for respondents indicated that respondentswere wiJing to enter into a stipulation of aJJ the material facts in-volved in this proceeding in order to avoid further hearings. .Aecord

ingly, the hearing was temporarily adjourned to permit the partiesto preparo and execute a stipulation of facts. On Nonmber 20 1963

the parties presented to the hearing examiner a11 executed Stipulation

of Facts which was approved and ordered by the hearing examinerto be copied into the rceorcl. The record \Yas then closed and the partieswere afforded an opportunity to submit proposed findings , conclusionsand order.

Thereafter , respondcnts counsel submitted a proposed order a,nel

brief in support thereof ,md complaint counsel submitted proposedfindings following in haec verba the paragraphs conbined in theStipulation of Facts proposed conc.usions and a brief in support

of the order set forth in the complaint.Consideration has been given to the proposed findings , conclusions

and briefs submitted. Findings Nos. 1 through 9 hereinaJter adoptedfollow the exact language of the "Stipulation of Facts :' and are not illdispute. Finding No. 10 is a conclusional'Y finding made by the hearingexaminer based upon Findings Nos. 1 through 9 anclreasonable infer-ences to be dra \V11 therefrom.

rINDr.:-ms OF c\

1. At the time of the publication aT the adyertisements quoted in

Paragraph Four and Paragraph Seven of the complaint in this matterAshland Estee Sleep Shop, Inc.

, .

Western Estee Sleep Shop, Inc. , :llil-waukee Avenue E tee Sleep Shop, Inc. , Centrnl Estee Sleep Shop, Inc.Harlem Estee SJeep Shop, Inc. , 21st Street Estee Sleep Shop, Inc.

280 FEDERAL TRADE COMMISSION DECISIONS


(j:Jrd Street Estce Sleep Shop, Inc. , 03th Street Estec Sleep Shop, Inc.werc corporations organized , existing and doing business under and byvirtne of the laws of the State of Illinois , and wcre located in Chi-cago , IJJinois. Their principal offce "as located at 2400 ,Vest 21stStreet in the city of Chicago , State of IJJinois. AJJ of the above-namedCOl'pol'iltions also maintnined an offce in Hoom 8'U.i , 29 South LaSalleStreet , Chicago 3 , Illinois.

At the time of the publication of the ad vertisemcnts quoted in Para-graph Four and Paragntph Seven of the complaint in this matterHammond Estee Sleep Shop, Inc. , ,vas a corporation organized , exist-ing and doing business under and by ITirtue of the hnys of the Stateof Indiana , and "-as located in Hammond , Indiana. Its principal offce,,lS at 2400 ,Vest 21st Street in the city of Chicago, State of IJJinois.

It also maintained all offce at 1511 )Icrchants Bank Building,Inc1ian::polis 4 , Indiana.

At t.he time of the publication of the advertisements quoted in Para-graph Four and Paragraph Seven of the complaint in this matterEstee Bedding Company "\vas , and at present still is a corporation

organized , existing and doing business under a,nd by virtue of the lawsof the State of Illinois, with its princip,d offce located at 2400 ,Vest21st Street , in the city of Chicago , State of Illinois. Estee HeddingCompany also maintained and still maintains an offce at 241-1 'Vest21st Street , Chicago , Illinois.Samuel Trossmrm , )Iarvin Trossman , Harold Trossrnan , and N or-

man Trossman are individuals and at the time of the publication oft.he advertisements quoted in Paragraph Four and Paragraph Sevenof the complaint in this matter, were offcers of ea.ch corporation namedabove. Their address was and stiJJ is Q400 ,Vest 21st Street, in the cityof Chicago , State of IJJinois. They formulated , directed and controJJee!the acts nEd practices of nIl of the corporations named above , includ-ing the acts and practices set forth in the eomplaint in this matterand in the ease of Estee Bedding Company stiJ1 do. They dominatedand controlled eaeh of tllC above corporations to sueh an cx"tent thateach corporation "\';as unable to formulate policy independently andan of the above eorporations "\ere in faet operated as one entity.

On 1\1 areh 1 , 19G3 , Ashland Estee Sleep Shop~ Inc. , \Vestern EsteeSleep Shop, Inc. , J\Iil"\aukce A,Tenne Estee Sleep Shop, Ine. , CentralEstcc Sleep Shop, Inc. , Harlem Estee Sleep Shop, Inc. , 6:Jrd StreetEstee Sleep Shop, Inc. , 03th Street Estee Sleep Shop, Inc. , rme! Ham-mond Estee Sleep Shop, Inc", merged into 21st Street Estee SleepShop, Inc. , and on Iarch 19 , 1963 , tl18 name of the surviving corpora-tion 21st Street Estee Sleep Shop, Inc. , '\as changed to Estee SleepShops , Inc. The surviving corporation succeeded to all of the rights and

ESTEE SLEEP SHOPS , IKC. , ET AI.. 281

7': Initial D('d ioll

bligations of the corporat.ions merged into it. The Articles of Incor-poration and By-La",ys of the suryiving eorporation and the offcersnamely Samuel Trossman , ::IarYin TrossmfllI , Harold Trossman , andN onnan Trossmall remain the offcers of the surviving corporationand formulate , direct, and control the acts and praetices of the 8urviy-iug corporation , including acts and pra.ctiees of the type et forth in

t 11e eomplaint..2. At the time of the publication of the adyertisements quoted in

Paragraph Four and Paragraph Seven of the eomplaint Estee Bed-ding Company manufacturcd bedding and assembled furniture anddoes so at present. Each of the other corporatiolls that existed prior1:0 the above described merger soJd bedding and furniture at retail.They took orders for furniture and forwarded such orders to thexecutive ofIce at 2400 'Vest 21st Street , Chicago , Illinois. The me1'-

c1mndise ordered was then sent from the sole warehouse, which oceu-pies the same premises as the factory, 2400 ,Vest. 21st Street , Chicago111i11oi. , to the ('llstomer.

The corporations that existed prior to the merger, other than theEstee Bedding Company, also sold at retail furniture not manufae-tured by the Estee Bedding Company, but which was ordered fromother manufacturers by the executive offce at 2JOO 'Vest 21st.. StreetChicago , Illinois. They took orders from ellstomers for thisfnrnltureand ionvarded sueh orders to the executiye offce. The merehancliseordered was then sent from the warehouse to the customer. None ofsneh corporations , exee.pt the Estee Bedding Company, stocked bed-ding or furniture , except for samples. They functioned as shm\'r001l2.

3. Each of the corporations that existed prior to the merger aceeptedorders from customers residing outside the state where it was locatedand caused the executive offce to ship the merc.handise ordered or

cause it to be shipped from the factory and w"arehouse located in Illi-nois to the cllstomer located outside the State of Illinois. In the ease

of the J-Iammond Estee Sleep Shop merchandise wa.s also shippedfrom the factory a.nd warehouse in Illinois to customers located inIndiana. This is the manner in ",,,hieh sales and shipments ,,-ere madeby the corporations that existed prior to the mergcr nnd is the mannerin which sales and shipments are made at present by the surviving cor-poration, Estec Sleep Shops, Inc., and Estce Bedding Companythrough the sa.me retail locations th&t were employed prior to the mer-ger. Thus each of the corporations tha;t existed prior to the mergermaintained a substantial course of trade in bedding and furniture incommerce, as "commerce" is defined in the Federal Trade CommissionAct and since the merger Este.e Slcep Shops , Inc. , and Estee Bedding

B13- 1--iO--

282 FEDERAL 'TRADE COMMISSION DECISIOKS

Initial Decision G5 F.

Company have maintained ftl1d still maintain , a substantial course oftrade in bedding and furnit.ure in commerce , as " c.ommcl'ee " is definedin the Federal Trade Comnlission Act.

In reality the corporations that cxisted prior to the merger did notoperate as independent individual eorporations , but were componentsof one business entity that \vas operated as a vertieally integratedoperation dominated and controJJed by the respondents , Samuel , )1ar-vin, Harold , and Norman Trossmal1 , which maintained a substantialcourse of trade in bedding and furniture in comlnerce , as "col1l1crceis defined in the Federal Trade Commission Act.

Since the merger the surviving corporation, Estee Sleep Shops

Inc. , and Este Bedding Company have been and at present are oper-ated as a vertieaUy integrated operation dominated and controUedby the respondents , Samuel , l\iarvin , I-Iarold, and Norman Trossmanwhieh maintains a substantial COUfse of trade in bedding and furniturein commerce, as "commerce" is defined in the Federal Trade Commision Act.

4. In the course and conduct of their business, and for the purposeof inducing the sale of said bedding and furniture , respondents haveplaced or caused to be placed advertisements in newspapers of generalcirculation. The foUowing statements from the aclYertisements aretypical , but not aJl inclusive:

Kroehler Foam Cushioned Sofa and Chair Save $60 Decorator de-signed II '" "' Get yours today at Estee . only $149.

Pc Bedroom Suite " * * At Estee, yours for only $149. 88. Sa,e $60

Handsome Decorator I..iving Room 2-Piece Sofa and Chair Suite $139.Ki.Save $45

Imported Danish Style RoomGroup for Easy Relaxa tionFoam Lounge__-__- -----

------ -- ------ - - ------- -- --- --- ---

Armchair ---

----------------- ------ --- - -- - --- - - - -- - ---

Itcker ------

--------- -- - --- - ---- --------------- --- - -- -----

60' , Slat J3ench -

----- --- - - - -- --- - -- - - - -- --- - - - --- - ------

$79. DC;

39.49.19.

Total ------

---

------------------------------------------ $189.

You pay only_____--------------------------------

------ --

119. SS

Save -- ---

---- - - - -- - - -- ---- ---- - - - -- - ----- - -- - - - - -- - ---

$GB. 92

..11 for only $119.

5. Through the use of the aforesaid statCI1eJ1ts, the respondcnts

have represented , directly or indirectly, that:1. Tho respondents usually and cllstmnarily sold U18 Kroehler fOfim

cushioned sofn, find chair for $209.88 in the recent regular course oftheir business and that a saving wouJd be made of $GO.

ESTEE SLEEP SHOPS, I , ET AL. 283

274 Initial Deci ion

2. The respondents usually and customarily sold the three pieee bed-room suite for $209.88 in the recent regular course of their busineEs

and that a sr.ving would be made of S60.3. Tho respondents usua.lly and customarily sold the tYro piece sOIa

and chair suite for $184.95 in the recent regubl' COUl':3e of their busine-:sand that a saving ,vould be made of 845.

4. The respondents u ually and customarily sold the Danish styleroom group for $189.80 in the recent regular course of their busil1eand that a saving would be made of $69.92.

G. In truth and in fact , the rGspondents have not regnlarly sold theitems listed in Paragraph;) at the prices stated therein and the savil1gsstated therein would not. be made. Therefore , the state,ments and rep-resentations referred to in Paragraphs 4 and '-j are false , misleading,and deceptive.

7. In the conrse and conduct of their business the respondents 11ave

made the following guarantee statements in their ne"spaper advertise-ments of their mattresss:

;) Year Guarantee*5 Year Written Guarantee*15 Year Guarantee*10 Year Guarantee*10 Year Written Guarantee

A footnote to these staternents in each ndyertisement explairshould mattress become unserviceable io original purchaser from

normall1se, free repairs will be made.8. In truth and in fact the guarantee card whic.h accompanies. a

rnattress bears the statement that the purchaser must:1. FiJ out and mail in the guarantee stub portion of the card to the

Estcc Sleep Shops within thirty days of purchase.2. Use the Inattress on an EsteG foundation.3. Paya11 costs of tmnsportation and handling.These statements are not disclosed in the respondents advertising.

Therefore the statements and representations rcferreu. to in Para-graph 7 are false, misleading and deceptive.

9. In the conduct of their business , at aU times mentioned hereinrespondents have been in substantial competition , in eommerce , witJlcorporations , firms, and individuals in the sale of bedding and fllrnj-ture of the same general kind and nature as that sold by respondents

10. The use by respondents of the aforesaid false, misleading anddeceptive statements , re.preseniations and practices has had , as nowhas, the capacity and tendency to mislead members of the purchasingpublie into the erroneous and mistaken belief that said statements andrepresentations "ere and are trne and into the purchase of substan6a1

284 FEDERAL THADE COl.L\lISSIOK DECISIOXS

Initial 1Jeci j()ll (j,") F.

quantities of respondents : products by reason of said erroneOllS and

mistaken belief.COXGLUSIOXS

1. The aforesaid acts and practices of respondents as herein aJ1egcd

were and are all to the prejudice and injury of the public and ofcspondonts competitors and constituted , and now constitute , unfairmethods of competition in eommercc and uniair and deceptive aetsand practices in commcrce , in yioJation of Section of the FederalTrade Commission Act.

2. The Federal Trade Commission has jurisdiction of and overspoJldents and thc subject matter of this proceecling.3. The complaint herein states a can e of action , and this proceeding

is in the pub1ic intBrest.

DISCUSSION" OF .\PPROPRLI.TE onDEr:

\8 heretofore found , respondents ' deceptive pricing praetiees con-sist in part of t.he use in newspaper advertisements of a dual pricingsystem, that is, a higher un designated price in juxtapositjoll withrespondents ' lower selling price followed by the term " save" togetherwith a figure representing the difference between the higher and Jo\vorprices. Similarly, in newspaper ndvcr6sements , respondents set forththeir selling price fo1Jowed by the term " save ': together with a clo1Jaramount. Although the higher llndesignatcd price is not spel1ed out inthe latter type of situation , it is patently clear that the higher inferredprice is the amount of the saving added to respondents ' selling prjce.In short, although respondents employ sevcral variations of theirdeceptive pricing practice , it boils down to the age old dual pricingtechnique, whicJl , if accurate and truthful , is not decel)tive. 11owoveras employed by respondents, it was deceptive , since a substantial seg-ment of the purchasing' public was led to believe that the higher un-designated price was respondents ' usual a.nd customary price ; when infact respondents had not regularly sold such items at the higher

pnce.Pa.ragraph 5 of the complaint as drafted as well as the form

of order contained in the eompla.int, hereinafter set forth, whichcomplaint counsel now requests the hea.ring- examiner to adopt, arepredicated on the theory that a higher undesignated price in juxtaposi-tion with a lower selling price or the term "Save -" in conjunctionwith respondents ' selling price , universal1y means in the minds of thepurchasing public that the higher unclesignatecL pric.c is respondentsusual and regular price. The hearing examiner does not agree. Theuse of a hjgher unclesignatecl price in juxtaposition wjth a lower sell-

ESTEE SLEEP SHOPS , D,TC., ET AL. 285


ing price or the term "Save -" in conjunetion with respondents

selling price is at least ambiguous. The ambiguity arises over thefact that the use of a higher price ,,-ithout designating what it standsfor or the use of the term ::Save -

" "

without indicating from whatthe saving is derived , is sl1seeptibJe of severa.l interpretations by thepnI'chasing public.

Admittedly, a. substantial segment of the purchasing publie inter-prets t.he higher undesigna.ted price to be respondents ' nSllfll andregular price , and when it is not as in the instant casc , they are de-ceived. It is also true that an equal1y substantial segment of the, pur-ehasing public \yiJ1 interpret the highcr llJlclesignated price to be thellsua,l and regular price in the trade area Le. the pricc ehftl'ged by

respondents ' competitors. In the latter situation , such purchasers willbe deceived and trade wiJ1 be unfairly di,' ertcd from respondentscompetitors, if the higher unc1esignatcd price is not the usual andregular price in tlJC tra(lr, area. The fact that the higher price jsrespondents ' usuill andrcguJar price "will not cure the deceptive impre3-sion ereatec1 in the minds of this segment of the purchru:;il1g public.

Under these circumstances, the continuec111se of a higJler undesig-nated price, direeUy or by implication , "\yhethel' it be respondentsu-oual and regular price or the uS11al and reglllar price in the trade

a.J a is ambiguous and consequently a sub!:tantial segment of the pm"chasing publie will be misled at all times.

Complaint eounseFs proposed form of order directs that respondentsceafie and desist from:

1. Representing, directly 01' by implic.ation that:(,t) -,\ny amount is the usual and cllstomary price of the

rcspondents : merchandise "\yhen it is in excess of tl1C priceat which said merchandise is usually and cllstolnal.jly soldat retail by the respondents.

(b) Any saving is nilordecl in the plln hase of merehanc1ise

from the re pondents' price unless the price at "\yhieh it

oflered is Imyer than the, price at. "Which said merchandise, isusuaJJy and customllI'iJy sold at retaij by the respondents.

As the hearing examiner reHd this order , it does not clearly andprecisely prohibit respondents from using a higher unc1esignatec1 pricein juxtaposit.ion ,,,ith a lo,,'er selling priee when the higher undesignated price is the usual flnc1 customary retail price of respondents.In fact plllagraphs l(a) and 1 (b) would secm to sanction the verypractice provided the higher ul1cl( signated price is respondents 11snaland customary price. .As demonstrated above the continued use of nnundesigna.ted higher price in juxtaposition with a lower selling price

is ambiguous und ,,,i1l1ead to t.he deception of a substantial segment

286 FEDEHAL 'I'HADE COMMISSION DECISIONS


of the purchasing public. This is the very essencc of the matter. Sincecomplaint counseFs fonn of order does not cure this deeeptive practicethe hearing examiner finds the proposed form of order to be unaccept-able. Furthermore, pa.rgraph 1 (b) of the proposed order wouldprohibit respondents from representing that any saving is affordedin the purchase of an item unless the advertised price is lower tlnllrespondents ' usual price. This is unjust and unreasonable and notcalJed for by the facts of the case. Respondents may desire to seJJ mer-chandise at lower prices than their competitors. This paragraph of theorder would ha,ve the effect of preventing respondcnts from represent-ing that a saving is a:florded in the purchase of all item "" hose sellingprice is below the trade area price solely because the selling price is notalso below respondents ' usual price.

In view of the foregoing the hearing examiner has drafted his ownorder which ,,"ould eliminate the use of 11l1designated dual prices witht.heir resultant ambiguity, while preserving to respondents the right to("H:lpare their lower selling prices to their usual and regular prices , orthe usua.l and regular prices in the trade area. The order as framedis restricted to dual pricing practiees , since this is the only area ofdeceptive pricing in which the respondents have engaged. The hear-ing examiner finds no basis in respondents ' past conduct from whichit may fairly be anticipated that they wiJJ engage in other deceptive

pricing practices in the future. L.R. B. v. Exp,' e88 P"blishinp Co.c:t2 U. S. 426 , 435 (1941). Consequently, pftragraph 2 of the proposedorder directing respondents to refrain :from misrepresenting " in anyuILumcr ' the savings available to purchasers Df their merchandise iscouched in more sweeping language than the circumstances of the

matter require. Cou.ntry Tweed8 , lnc. et al. v. Federal T1'ade Cornmis-

sio" Trade Reg-. Rep. (1964 Trade Cfts. 985 (C.A. 2, Jan. 31%4).

The order as drafted foJJows an affrmative ftpproach to retail pricecomparisons containe.d in advertising, a clear and truthful descrip-tion to the public of the higher and lowcr prices. In a recent addressbefore the 53rd Annual Convention of the National Retail :\IerchantsAssociation , Chairman Dixon of the Federal Trade Commission said:

1Yl1ether the ad is truthful or deceptive therefore depends upon how honestlyn.d accurately the "higher" price has lJeen described-whether t11e alleged " re-

(lL tion " is real or whether it' s a figment of the advertiser s imugination.

TJlC Federal Trade Commission in the introdnctlon to its'?t2in8t Deceptive Pl'icing: effective .January 8 , states:

Gllides

The basic o1Jjecti'le of these Guides is to enable the bll ,illCSSn1flI to dyertisehi;; goods honestly. and to ayoid offering the consnmer non-existent bargains or11::' ;:2ins that wil be misnnderstood. Price advertising is particnlal'y effective

ESTEE SLEEP SHOPS I INC; , ET AL; 287

274 DecisioD

because of the universal hope of consumers to find bargains. Truthful .price ad-nrtising, offering real bargains , is a benefit to all. But the advertiser must shunsales " gimmicks" which lure consumers into a mistaken belief that they are get-ting more for their money than is the fact.

In the opinion of the hearing examiner the order is taiJored to curethe il1 effects of the iJJegal conduct and to assure the public freedomfrom its continuance. United States v. United States Gyp.nwn 00. , 340

S. 76, 88; All-Lwni""", P,' od"cts , Inc. , et al. Dockct No. 8485

",ovember 7 1963.vVith respect to paragraphs 3 of the proposed form of order dealing

with the guarantee violation , there is no disagreement by the partiesand the hearing examiner adopts it.

ORDER

It is ordered That respondents Estee Sleep Shops , Inc. and EsteeBedding Company, corporfltions and their offccrs and Samuel Tross-man, j\iarvin Tros;:man , Harold Trossman, and Korman Trossmanindividually and as ofEcers of said corporations, and respondents

agents, representati,' s and employees , directly or through any corpo-rate or other device, ill connection with 1he offering for sale, sale or dis-tribution of bedding and furnit.ure or other similar products , in comme.rce as "commerce " is dcfined in the Federal Trade Commission Actdo forthwith cease and desist from:

1. Representing, directly or by implication, that any saving isafforded in the purchase of such products by use of a direct or in-c1ireet dual price representation without using words or otherdescriptive means tha't clearly and truthfl1JJy describe both thehigher and lower prices.

2. Representing, directly or by impJication, that any of such

products are guaranteed unless the nature and extent of the guar-antee arc clearly and eonspicllously disclosed.

DECISION OF THE Co:;U)nSSIO T ASD ORDER TO

COl\PLIAXCE

FILE R.:EPORT OF

Pursuant to Section 3.21 of the Commission s Rules of Practice, ef-fective August 1, 1963 , the initial decision of the hearing examinershan on the 11th day of April 1964 , become the decision of the Com-E1ission and accordingly:

It i8 onlered That respondents herein shaJJ , within sixty (60) daysafter service upon them of this onler , file "\vith the Commission f1 re-port in writing setting forth in detail the manner and form in whicllit has complied ' iTith the order to ce.ase and dl ist.

288 FEDERAL TRADE COMMISSIO:\T DF.CISIO

:Modified Order to Cease and Desist ) F. 'l.

Ix THE IATTER OF

GIAKT FOOD , I

ORDER , ETC. , IN Rr GARD TO THE ALLEGED VIOLATION OF THE FEDER.\L TK\DE

CO::BIISSION ACT

Docket 1;)9. Crnnpla.fnf , May lD51' Deci8ion. Apr. 13. 19(J

Order modifying, in accordance with the direction of the District of ColumbiaCircuit of June 14, 1962 , 307 F. 2d 184 (7 S, &D. 483), desist order dated JunE'-

1. 1961 (;38 F. C. 877), requiring a large supermarket chain ,yith retail nut-lets in ::Um yland , Virginia and the Di trict of Columbia , ('rfl;,C "knrnyinginducement a.nd receipt of, receipt of, or contracting for the receipt of

discriminatory displH;V and promotional allowf1llces.

i\IODIFIED ORDER TO CEASE AND DESIST

Respondent having filed in the United States Court of Appea1s forthe District of Columbia Circuit a petition to revie\" and set asidethe order to cease and desist issued on June 1 , 1961; and the court onJune 14 , 1902 , ha ving filed its cleeisiol1 : and on September lS 1962 , ha y-ing entereel its final decree modifying and. as moc1if1cd. affrming andenforcing said order to cease and desist; 1lc1 the rnitecl State::Supreme Court haying denied it petition for ccrtiorari med byrespondent;

N OIl:: theTefoTe , it is heTeby oTdeTecl That the aforesaid orde.r toce.ase and desist be , a,nd it hereby is moc1jfied , in accordance ,,- iththe said final decree of the Court of Lppeals , to read as foJJows:

It is ordo' That Giant Food , Inc. , a corporation , and its offcersand rcsponc1cnt:s representatives, agents and employees , directly orthrough any corporate or other device , in or in connection with thepurchase in commerce , as " C011I1C1TC:: is defined in the Federal TradeCommission Act, of products for resale by the rcspondent. or in connec-tion ,,'ith a.ny other transactions between respondent and its varioussuppliers involving or pcrtaining to the regular business of the re-spondent in distributing a,nd sel1ing commodities and prodnets inCOlTllnerCe , as "commerce" is defined in the I! ederal Trade CommissionAct., do forthwith cease and desist from:

Inducing and receiving, receiving, or contracting for the receipt, anything of value from any supplier as cOlnpensation or in

consideration for display or promotional services or facilitiesfurnished by or through respondent in conncction with the proc-essing, ha.ndling, sale or offering for sale of products purchasedfrom such supplier , when respondent knows or could reasonablyhave learned that such compensation or consideration is not af.

THE GHAND UNIO C01.fPANY 289

Modified Order to Cease and Desist

firmntively offered or otherwise made available by such supplieron proportionally equal terms to all of its other customers com-peting -with respondent in the sale and dist.ribution of snchsupplier s products.

IN THE J\L TTEH OF

THE GRAND UNION COMPANY

ORDER : ETC.: IX REGARD TO THE ALLEGED VIOL,\TIOX OF THE FEDERAL

TRADE co:\nnSSION ACT

Docket 6973. Compla.int , Dec. 5, 195" Dectsion, .4-1)1. 13, 1964

Order modifying, pursnant to a decision of the Court of Appeals, Second Circuitof Feb. 7 , 1962, 300 F. 2d 92 , 7 S. &D. 329 , a cease and desist order of Aug. 121960, 57 F. C. 382, requiring a large Rupcl'market chain to cease inducing

and l'eceiYing adyertising and promotional services from some of its snppliers;yhich discriminated against it nonfayored competitors, by limiting thelanguage of the order to the pal'ticnlar practice. found to violate the statute.

l\IomYIED ORDER TO CEASE AND DESIST

Respondent having filed in the United States Court of Appeals forthe Second Cireuit. its petition to review and set aside the order tocease and desist issued herein on A ugnst 12, 1960; and the court onFebruary 7 , 1962-, having filed its opinion and on April 27, 1962 , havingentered its fina.l decree modifying and , a,s modified , affirming and en.forc.ing sa.id order to cease and desist; and the time allowed for filing apetit.ion for certiorari ha.ving expired and no snch petition havingbeen filed;

LV , therefoTe , it is hereby oTdm' That the aforesaid order tocease and desist be , and it hereby is , modified , in accordance with thesaid final decree of the Court of Appeals, to read as foJJows:

It is o1Yle1'd That respondent The Grand Union Company, a cor-poration , its offeers , employees, agents or representatives, directly orthrough any corporate or other device, in connection with the pur-chase in commerce (as " commerce" is defined in the Federal TradeCommission Act) of grocery products or related merchandise, do

forthlvith cease and desist from:Receiving, or inducing and receiving, the benefit of anything

of vaJue from any of its suppLers through any third person (butnot directly from said suppli8r), as compensation or in consicl-

eration for any advertising o:r promotional display services orfacilities furnished by or throngh respondent in connection with

290 FEDERAL TRADE CO:VIMISSIOX DECISIOKS

Modified Order to Cease and Desist G5 F.

the sale or offering for sale of products sold to respondent byany of its suppliers , when respondent knows , or should knowthat such benefit is not affrmatively offered or otherwise madeavailable by such suppliers on proportionaJJy equal terms to aJJ

their other customers competing with respondent in the sale anddistribution of the suppliers ' products.

IN THE l\L1.TTEH OF

KERS SECuRITIES COHPORATION

onDER , ETC. , LV HEfj.. \HD TO THE o\LLEGED nOLATION OF THE FEDER.\.LTn/\DE CO:'DIISSION ACT

Docket 7039. Com.plaint , Jan. Hi, 1958-De('ision , Apr. 19C-

Order modifying, in accordance with the direction of the Third Circuit of Dee-., HJ61, 297 F. 2d 403 (7 S. & D. 300), desist order of Dec. 1, 1960 (37

C. 1219) prohibiting fictitious pricing, to provide that it apply only tothe Snellenbnrgs d(lpartmcnt store;:.

10DIFIEDORDEH TO CL\SE XXD DESIST

Respondent having filed with the united St tcs Conrt of Appea1sfor the Third Circuit ft petit.ion to re\Tiew rmd set aside t.he. order tocease a,nd desist issned llerein on Dec mber, 1 1960; and the court on

Deeember 18 1961 , haying rendered its decision and on J-annary lS1962, having entered its judgment modifying and , as modified , aflrnl-ing and enforcing said order to cease and desist; nnc1 the time allo\yec1for filing a petition lur certiorari having expired and no uch petitionha \'ing been filed;

Now , thercfore , ,it i8 hen:by oJ'de1' That tl1e afore aid ordcr to

CrH.S8 a,ncl desist be, and it hereby is , modified , in accorchnce with tbeeaic1 final decree of the court of appeaJs , to read as foJlo\Vs:

It 18 orde-red That respo lc1ent Bankers Securities Corporation , a

corporation, and its officers , representatives, agel1ts and enlployees.direetly or through any cc" porate or ot.her device , in connection Yi- iththe offering for sale, sale, or distribution of carpets , rugs , or othermercJuLnclise by the cler,ci.rtment stores known as Snel1enburgsCOlTmerec, as "commerce" is defined in the Federal Tra,de CommissionAct , do fort1nvith cease and desist from:

Representing in any manner that certain amounts are the regll-litr and usual retail prices of me.rchandise sold by Snellenbllrgswhen sneh a.mounts fire 'in excess of the prices fit. which s,llchmcrchandise has been usual1y and regularl T sold by Snellenburgs

at ret.ail, in the recent regular course of its business.

"UNITED STATES ASSN. OF CREDIT BUREAUS , INT., ET AL. 291

Modified, Order to Cease and Desist

IN THE ::fAT'lER

UNITED STATES ASSOCIATION OF CREDIT BUREAUSINC. ET AL.

oHlmn , ETC. , IX BEGARD TO THE ALLEGED nOLATIOX OF TIlE FEDER

TRADE CO::DIlSSION ACT

Docket "/043. COlJl)laint , Ja.n. 1/;, 1958-Decisir:l/, Apr. , 1964

Order modifying an order dated June S, 1001 , 38 F. C. 104, pursuant to a deejsion of the Court of Appeals , Seventh Circuit, dated February 14 , 19G2 , 29F. 2d 220, 7 8.&1). 358, whic:h prohibited a collection agency from roakl:Dg1'a1'ions false representations , by permitting a representation tbat no cbarg("s

would be made for uncollected accounts ,,"here such staten ent is true iHJtl

deleting the requirement of affrmative disclosUlE' that its forms are for dFbtcollection.

:'iODIFIED GlmEH TO CL\.SE AX!) DESIST

Hespondents having filell ill the l;nited States COllrt of Appeals lortho Seventh Cireuit a petition to re.vimy and set aside the oreler ta cenEeand clesist issued herein on June 8 , 1961; rmd the, c.onrt on FeonulrT 141D62 , having rendered its decision and on larch 7, 1962 havingentered its nnal decree modifying and , a modified affrming and en-

forcing saic1orde,r to cemm and desist; ncl the time allowed for filingIt petit.ion for certiorari having expired and no petition for certiorarihavingbeellfied;

jVO'!) thcTefoTc , ,it is hereby or'del'ed That t.he aforesaid order toecase and desist be, and it hCl'cby is , modified , in accordance with tllesn,id final decree of the court of a.ppea,l , to read as follows:

It is oTdered That respondell LuiLed States Association of CreditBureaus , Inc. , a corporation , and its ofIcersa.nd respondents

, .

J olIn 1V.Burns ancl Harold E. Holder, individually and as offcers of saidcorporrtte responclent\ ftncl said respondents a.gents, represeEtatives 8.ndemployees , directly or through any corporate or other device, in con-nection ,,' ith the solicitation of accounts for collection, or t.he collec-tion of 01' attempts to collect account.s , or to obtain information c.Ol1-

cerning delinquent debtors, in commerce, as " commeree" is clefinedin the Fe,eleral Trade Commission Act, do forthwith cease a.nd c1eslst.

from:1. Gsing the won1s " association" or '; creclit burenus ' or any

other term of similar jmpol't or meaning in the corporate na.me orin any other manner t,o designate , describe or refe-r to respondentsbusiness, or otherwise representing, directly Or by implicationthat respondents ' business is an association or a credit bllreau.

292 FEDERAL THADE CO:1IMISSIO DECISIONS

Modified Order to Cease and Desist (jj F.

2. Using the name "United St.ates ': in the corporate name orin any other manner , or all insignia so designed as to suggestgovernment connection , to c1esignate describe, or refer to respond-ents ' husiness; or otherwise representing, directly Or by impliea-tion , that they are an agency or branch of the United Stntes gov-crnment , or that their business is in any ,yay connected "ith theUnit.ed States government.

3. Representing, through the llse of a corporate or other trade.name, Or in any other manner , that their business is other thanthat of a collection 'agency engaged in colleeting past due accounts.

4. Represent.ing, directly or by implication:(a) That their business is oqranizecl into separate func-

tional divisions for the collection of accounts;(b) That they employ JocaJ representatives, regional in-

yestigators, correspondents or lawyers on the.il' personnelstaff in various states or throughout the "odd , or that theyemploy nny one on thelr personnel staff except solicitorsanywhere outsic1e of the Chicago or Oak Forest , lllinois a.'ea;

(c) That they make pel'sonal caDs Oil debtors to coDedaccounts;

(d) That no ehal'ges ,yill be made for accounts unless thcyarc collected , unless sHeh statement is true;

(e) That the collection fee or commission is less than anyamolUltactnaJly to be charged by respondents;

(f) That they furnish credit reports to parties who haveassigned accounts to them.

5. Using, or causing to be used , any forms , cards or other ma-terial , printed or written , for use in obtaining information coneerning delinquent debtors, \vhich represent, directly or by impli-cation , that money or property is being held for, or is due, per-sons concerning whom the information is sought, Or is eolJectibleby sneh persons , unless moncy or property is in fact due and collectible by sueh persons and the amount of money or property isac-t1HtJly stated.

RAYl:X COHPORATION E1' AL. 293

illodified Order to Cease aud Desist

Ix 'rIE :MATI'R OF

RAYEX COlWOltATIO" ET AL.

ORDEn , ETC. , IN REGARD '1'0 THE ALLEGED VIOLA TlON OF THE FEDER. L TRADE

COllBIISSIOX ACT

Docket 7346. Complaint, Jan. l.9M!-Decision, Apr. , 196-

Order modifying, in accordance with the directive of the Second Circuit datedMay 7, 1003, 317 F. 2d 290 (7 S.&D. GDu), by vacating as to one respondentand as to the portions of the order directed at pretieketing-clesist order ofApril 2 , 1902 , GO P.'.r. C. 664, to require assemblers of sunglasses in Flushing,Queens Y.. to cease misrepresenting the diopter curve of their sunglassesand falsely claiming cunformance with the standn,rds and specifications ofthe U. S. Air Force or Department of Defense.

l\IODLFIED ORDER TO CEASE AXD DESJST

Respondents having filed in the United States Court of Appeals forthe Second Circuit a petition to review and set aside the order toeease and desist issllcd herein on Apl jJ 2 , 1962; and the court on Iay 7,1D63 having filed its decision and on :May 22, 1963 , having entered itsfinal decree modifying and , as modified , affirming and enforcing saidorder to cease and desist; and the time allowed for filing a petition foreertiorari having expired and no such petition having been filed;

JrlO1D : therefope : it ,is hereby o?'dered That the aforesaid order tocease and desist be, and it hereby is , modified , in :accorclance with thesaid final decree of the court of appeals, to read as fo1Jows:

It is oTdered That the respondents , Rayex Corporation , a corpora-tion , and Ray Tl1nkel and I-Iarry I\:ramer, individuaJly and as offcersof said corporation , and respondents ' agents , representatives and em-ployees , directly 01' through any corporate or other devic-e , in connec-tion with the offering for sale, sale or distribution of sunglasses , incommerce , as ""commerce" is defined in the Federal Trade CommissionAct, do forthwith cease and desist from representing, directly or byiJnpEcation:

(a) That their sunglass lenscs have a given dioptie curve unlesssuch is the fact; provided , however, that in the ease of gTOWld andpolished sunglass lenses a tolerance not to exceed minus or pluslA. th diopters in any mcridian and a difl'ercnce in power betweenany two meridimls not t.o exceed 1 th diopter and a prismatic

dIect not to exceed /s diopter sha1J bc aJJowed.

(b) That their sungbsses , .or the lenses thereof, meet or com-ply ,,'ith the specifications and standards of the United StatesAir Force or Department of Defense.

294 FEDERAL THADE CO;\IMISSIO T DECISIOKS

:Modified Order to Cease and Desist 6;: F.

Ix THE tfA TTER OF

AMERICAN NEWS CO IPAKY AND THEUNIOK ::EWS COiIPANY

OlmE!:: ETC., I:N REG_\RD TO TIlE ALLEGED VIOLA TIO Of' 'l'HE Fl':DET:ALTI:ADE C03DIISSIOX ACT

Docket 7396. Complaint , Fcb. 5, 19,';. Dcci8ion , Apr. , 1!)64

OnJr:r modifying, pursuant. to a decision of the Court of Appeals , Second Circuiton February 7, 1962, 300 F. 2d 104, 7 S. S.:D. 346, a (:case and desist orderdated January 10, 1961, 58 F. C. 10, requiring large newsstand operatorstocease in ncing and receiving dif'criminatory promotional allO\\'ances from

magazine publishers, by eliminating paragraph lof the original order uCHlingwith attempts to induce discriminatory allowances.

l\IODIFIED OUDER TO CEASE AXD DESIST

Respondents having filed in the 17nited States Court of Appealsfor the Second Circuit a petition to review and set aside the order tocrase and desist issued herein on January 10 , 1961; and the court onFebruary 7, 1962 , having filed its decision , and on April 27 , 1962 , hav-ing entered its final decree modifying and as modified , aHirming an(lenforcing said order to cease and desist; and the Uniteel StatesSupreme Court haTing denied a petition for certiorari filcd by

t.pondents jiYow, thel'efoTe , it i, hereby oTdered That the aforesaid ordeT to

cease and desist be~ and it hereby is modified , in accordance \yith thes;lid final decree of the Court of Appeals , to read as follqws:

it is uTde?'cd That the respondents , The Ameriean :News Companyand The linion Xews Company, corporations , their offcers, employeesngcnts or representati\- , directly or through any corporate or othercL" yice , in or in connection \yith t.he purchase in commerce, as :' eom-meree" isdefinccl in the Federa1Tracle Commission Act, of proc1uct5

)1 resale on ne\Tsstallcls operated by rcspondents , do forthwith ceaseand desist from:

Receiving, or inducing and receiving, or contl'acting for thereceipt of, anything of value from any of their suppliers as com-pensation or in consideration for display or promotional services

01' facilities furnished by or through respondents in connectionwith the proeessing, handling, sale , or of Ie ring for sale of prod-ucts purchased from any of their suppliers, when respondentsknow or should know that such compensation or consideration isnot affrmatively o:flered or otherwise made available by such sup-plicrs on pl'opOliionalJ;y equal terms to all thcir other customers

YANITY FAIR PAPER J\IILLS) I 295

)lodified Order to Cease and Desist

competing with respondents in the sale and distribution of suchsuppliers ' products.

IN THE MATTR OF

VAXITY FAIR PAPER MILLS , INC.

onDER , ETC., IX REGARD TO THE ALL1 GED VlOLATIOX OF SEC. 2 (d) OF THE

CLAYTON ACT

Docket 7720. Complaint, Jan. 5. j9GO-Dcci8ioli. Apr. 13, j,f..

Order modifying, pursuant to a decision of the Court or A.ppeals , Seeond Circuit,elated l\ o"ember 17 . 1962 , 311 F. 2d 480 (7 S.&D. 583), an order of March 211962, 60 F. 'l' C. 568, ,yllich charged a paper produ'cs manufacturer ,vithiolating Section 2(d) of the Clayton Act , by substituting in lieu of the

wotds

, "

advertising or otller services or facilities , the new woros

, "

adver.tisiIJg or promotional display services or facilities anc1' Eke or relatpractices

" .

:MODIFIED ORDER TO CEASE AND DESIST

Respondent having filed in the United States COl1t of Appeals fOlthe Second Circuit a petition to review and set aside the order to ceaseand desist issued herein on March 21 , 1962; and the court on November2-;, 1962 , having .fled its decision and on December 18, 1962, havingentered its final decree 11loclifying and, as modified, affirming andenforcing said order to cease and desist; and the time al1mvecl for filinga petition for certiorari ha.ving expired and no such petition havingbecn filed;

)Vow, theTefo' , it ,is hereby ordcTcd That the aforesaid order to('ease and desist be , and it hereby is modified , in accordance with thesaid final deeree of the Court of Appeals , to read as foJlows:

J t is ordered That respondent, Vanity Fair Paper :Mills , Inc. , a cor-poration , its offcer2, employees , agents, or representatives, directly ortbrough any corporate or other device, in or in connection with thesrL1e in COlTunerce as "commerce" is defined jn the Clayton Act, asamended , of paper products, do forthwith cease and desist from:

Making or contracting to make , to or for the benefit of J. IVein-garten , Inc. , or any other customer, any payment of anything ofvalue as compensation or in consideration for advertising or pro-motional display seryices or facilities and like or related practicesfurnished by or throngh such cl1stomer , in connection with thehandling, oHering for resale , or resale of the respondent's prod-ucts, unless sueh payment is ofiered or other'lvjse affrmati \-e1y

made available on proportionally equal tenns to all other cus-tomers competing in the distribution or resale of uch products.

296 :FEDERAL TRADE COM!llISSION DECISIONS

Complaint 65 F.

Ix THE :\L\TTER OF

THE BORDEX CO:\IPAXY

COXSEN'l OHDER , ETC. IN REGARD TO TH1 ALLEGED VIQLATIQX OF SEC. 7 OlTHE CLA YTO ACT AND THE FEDERAL TRADE 00M111881OK ACT

Docket 6652. Comp7f1int . Oct. 1956-Dectsion, Apr. , 1961,

Consent order requiring the second largest company in the dairy products indus-try-which, beginning with 1928, had by 1950, prior to the time Section 7

of the Clayton Act was amended, acquired over 500 concerns manufacturingand distributing fluid milk and milk products, and which continued toacquire similar properties to the time complaint was issued-to divest itselfabsolutely within 18 months, subject to approval of the Commission. of allthe assets , properties, rights and privileges, tangible and intangible , acquiredas the result of its acquisition of eight regional dairy businesses operatingin various towns and counties in Colorado, Nebraska, New Mexico, Kansas,::Iichigan, Ohio, Florida, District of Columbia, Virginia, Maryland , andOregon; and probibiting respondent from selling milk or milk productswitbin tbe marketing areHS of the divested concerns for a 5-year period;and to desist, for 10 years, from acquiring dairJ' concerns without priorapproval of tbe Commission.

CO:\IPL\IXT

The. Federal Trade Commission , having reason to believe that theparty respondent nmned in the ca.ption hereof and hereinafter moreparticularly designated and c1cscribed has violated and is now yiolat-ing the provisions of Seetioll 5 of the Federal Trade Commission Act(V. C. Title 15 , Sec. 45) and Section 7 of the Clayton Act (U.sC.TitJe 15 , Sec. 18) as amended and approved December QD , lD50 , andit appearing to the Commission that a, proceeding by it ill respectthereof \\oulcl be in the public interest , hereby issues its complaintcharging as follmys:PARAGRAPH 1. Respondent The Borden COl1p llY hereinafter rc-

felTed to as "Borden" is a corporation organized and existing underthe laws of the State of Ne,y .Jersey, with its principal offce and pl;tceof business loeatecl at 350 l\Ia.chson Avenne e'y York l' , :Sew l: ol'k.

PAR. 2. Borden is primari1y an operating company engaged princi-pany in the purchase : manufacture , processing and distribution ofdairy products throughout the United States and Canada. Borden isthe second largest dairy company engaged in the dairy products iJ1-

dnstl'Y in the United States. The company is engaged iu commerce ilS

"'Paragraphs 6 and 7 reported s amended b;,' orders of bearing examinE'l' c1iltcd Oct. 231D62 and :\ll;!' 7 , 19G3 to l'cfl(!ct additional companies to those alleged to have beenllcq\lired by respondent,

THE BonDE COI\lPAXY 297

296 Complaint

commerce" is defined in the Clayton .Act (1)l the Fpc1eral Trade Com-mission Act.

PAR. 3. A. substantial portion of the growth of Borden has beenthrough mergers or aequisitions. Beginning with 1028 , Borden illiti-ateda policy of expansion by acquiring it large number of concernsengaged ,in practically all branches of the dairy products illdllstrBy 1950 , prior to the time Section 7 of the Clayton Act was mnendeclBorden had acquired over 500 concerns engaged in the purchasemanufaetul'e , processing and distribution of fluid milk, ice cream

cheese , butter, milk by- products and condensed and evaporateclmilk.Primarily as a result of saiel acquisitions , Borden s net sales increasedfrom $180 849 994 in 1928 to $013 703 267 in 1950. Borden followed apattern of acquiring dairy concerns in selecteclloealities, strengtheningits position in these localities by additional acquisitions , branching Juthy acquiring companies in nearby localities, consolidating its localacquisitions into broad regional or distriet organizations , bringinginto the fold leading companies in the major regions , .1.11d, by this

steady pattern of encroachment , becoming a nationwide organizationwith a substantial share of the purchasing, manufacturing, processingand distribution of dairy products.

PAR. 4. A port.ion of Borden s business is conducted by eleven domes-tic and t1"O Canadian subsidiaries. The company s operations are con-

duded through its six product divisions; yiz , Fluid l\filk Division

Ice Cream Division , :.fanufacturecl Products Division , Cheese Divi-sion , Special Products Division and Chemical Division.

Fluid Iilk Division: The principal products of this diYision; viz

milk, cream , cottage cheese , butter, chocolate drink and orange drinka.re manufactured Or processed in U5 plants and sold in 22 States andt,"o Canadian Provinces.

lee Cream Division: The principal products of this division; vizbulk ice crea.m, packaged ice cream , ice. cream novelties and fruitsherbets are manufactured 01' processed in 62 plants and sold in 32States and two Canaclian Provinces.

:l\anufacturecl Products Division: The principal proclucts of thisdivision; viz , condensed and evaporatBd milk, instant conee, inst.ant

hot chocolate, mince meat , powclerec1milk and malted milk are manu-fact.ured in 38 plants and sold in 48 States , all of Canada , '-nl1 manyforeign markets. This division a1so operates many milk receivingsta 1.ions.

Cheese Division: The principal pl'o(lucts of this clivi Jioll; viz , naturaleheese, dessert cheese, process cheese. fom!:, grated chpe,se, cocktailspreads ancl biscuits are. manuIacture,cl or processecl ill 22 plants andsold in 48 States , all of Canada , and 11i1 ny foreigl1 markets.

:nc.-121- 70-

298 FEDERAL TRADE CO:.BnSSIO T DECISIONS

Complaint G5 F.

Special Products Division: The prineipal products of this division;viz, nnimal feed supplements , poultry feed supplements , soy hean oilsoy bean meal , prescription foods, bakers ingredients , beverage basesmilk sugar, vitamin-mineral fortifiers , and cleaning and sanitizing:compounds arc manufactured or pl'oce sec1 in eight. plants and soldin 48 States and aJJ of Canada.

PAIL 5. Borden s net sales for all products increased from approxi-mnteJy $613 million in 1050 to approximately $810 miJJion in 1%5 , anincrease of $197 million , or 30%.

Borden s fluid milk sa.les increased fl'Olll approximately 82. 20 miEon in 1950 to approximately )im07 mi1lion in 1 D55 an increase ofapproximately $87 million , or 39%.

Borden s sales of frozen desserts increased from approximately $107million in 1950 to approximately $122 million in 1955 , an increase ofapproximately S15 million or 14%. Frozen desserts, as llsed hereinincludes ice cream , ice milk, sherbets, water ices

, "

mellorine : andother similar frozen dairy products. A substantial portion of the afore-said increases in sales resulted directly from the acquisitions herein-",fter described.

PAR. 6. In a series of transactions be.ginningin.Tanuary. 1\);51 , Bordenhas a.cqllired all or part of the stocks or aSf-ets of the. following namedcorporations engaged in the purchase, ma.nufacture: processing or

distribution or dairy products. ,Vhen llsed herein the term "dairyproducts" shall include one or any number of the following products:milk , cottage cheese : cream , ice cream , chee : butter , powde.red milk-ice ere am mix , canned fresh milk : frozen desserts and evaporated milk.All of the acquired corporations at the time of the said acquisitions : inthe rcgular course of business , e.ithe,r manufactured : purchased , proc-essed or distributed dairy products in and throughout the variousStates of the United States or purchased and received shipments ofdairy products or equipment related to the manufacture , proresssing01' distribution of dairy products from produeers , suppliers , manu-fncturers or proeessors located throughout the United States. All of thencql1il'ed corporations , prior to and at the time of the acquisitions , wereengaged in COl1merce. as "commerce ' 'is defined in the Clayton Act andt.he Federal Trade Commission Act. Such acquisitions include. theiollmying:

(1)(2)

Iowa,(3) Lindale Dairy Corporation , 124 IV. Lexington Avenue , High Point ,,TC.

1%1

Datson Dairies , Inc. , 1-18 'Vest Street, Orlando , Florida.Algona Ice Cream & Candy Factory, Inc. , 519 Diagonal Street , Algona

THE BORDE PANY 299

Complaint

1952

(4) Abdella Ice Cream Co. , Inc. , 6-8 Elm Street, Gloversvile, N.(5) Hawthorne Mellody Farms Dairy of Indiana , Inc., 1224 No. Ca,pitol Avenue

Indianapolis , Indiana.(6) Oakside Dairy Products, Inc. , Route 14, WoodstoCl(, Illnois.(7) Longhorn Creamery, Inc. , 947 South 4th Street, Abilene , Texas.(8) Ba,ssett Dairies , Inc. , 1045 Xo. :\Ionroe Street, Tallahassee, Florida.(9) Arden Farms Company, 1900 'West Slauson Avenue, Los' Angeles,

California.(.10) Cooperative Dairies, Inc. , :Uonroe, Louisiana.

1953

(11) Progress Ice Cream CD. , Inc. , 900 Huntington Street, Watertown , NewYork.

(12) Winnebago Cheese Company, 217-229 W. Division Street, Fond du Lac,'Visconsin. (13) \Vashington Better Foods , Inc., 1400 Alaskan Way, 'Seattle, Washington.(14) .schaefer Dairy Co. , Inc., 2324 East 30th Street, Indianapolis, Indiana.(15) Ridge Dairies , Inc. , Polk County, Florida.

1954

(16) Sani-Seal Dairies, Inc., 1743 E. Genesee Avenue, Saginaw i\IiChigan.(17) Sturtevant Dairy Products Co., 400 16th Street, Rock Island, Illnois.(18) Pep Crcameries, 433 Main Street, Watsonvile , California.(l!)) l\cLeran Ice Cream Co., 317 South Spring Street, Tupelo , J.fississippi.

1955

(20) Cream- Kern , 121 E. 21st Street , Bakersfield, California.(21) Hi-Lan Dairy, Inc. , 2341 Second ..venue, Des 1:Ioines Iowa.(22) F. H. Soldwedel Co. , 301 E. Elizabeth Street, Pekin , Illnois.(23) Chenango Ice Cream Co., Inc. , 16-1S'Vaite Street, Norwich , New York.(24) Clover Farm. , Inc., 77 Sel1gewick Street, Bridgeport , Connecticut.(25) Everpure , Inc. , 1024 E. Fairchild , Danvile, Illnois.(26) l armer s Dairy ::lanagement, Inc. , 2707 DixieHighway, Hamilton, Ohio.(27) Skipton Dairy Cu. , Inc. , 75:3 .Worthington Street, Springfield

l\Iassachusetts.(28) Santa :;Iaria Dair\' Products Co. , Haute 3, Baton Rouge, Louisiana.(2!)) Brandt Dairies, Inc. , Barrington , Illinois.(30) Terry Dairy Products Co., Inc. , Little 'Rock , Arkansas.(31) Clover Brand Dairies , Inc. , High Point, North Carolina.

1956

(32) Sylvan Seal ::IiIk , Inc., Pl1iIadelphia , Pennsylvania.(33) The Continental Frozen Desserts Company, Oxon Hil(34) Colonial Ice Cream Company, Inc., Scotia, New York.

::lar;ylal1d.

1957

(35) Hygienic Dairy Company, Inc. , Watertown, New York.(86) Korthern Milk Corporation , 'Vatel'town ew York,

::OD FEDERAL TRADE CO?\DlISSION DECISIONS

COlUlJlaint u:: 1- .'I'

1958

PH) Lake Shore Ice Cream Inc. , )larysvile , Michigan.

(38) Central Dairy Company, Rockford , Illinois.(3'J) Empire Cheese Company, Inc., Spolmne, . Washington.

1959

(40) Dinsmore Dairy Company, Duval, Florida.(41) Carlson- Ji-'rink Company, Denver, Colorado.

) Ball & Company, Lexington , Kentucky.

1960

(43) Idol Dairy Products , Inc. , Durham , Korth Carolina.(44) Golden Cream Dairy, Inc. , Galesburg, Illinois.

1961

(45) Clark Dairy. Inc.

, '

West Haven , Connecticut.(46) Hyde Park Dairies, Inc., Wichita , Kansas.

1954

(47) layfiower Dairy Company, Little Rock, Arkansas.(48)' Parker ::Iaytlower Dairy Company, Little Rock , Arkansas.

(49) 'Johnson lee Cream and Cold Storage Company, Little Rock

1956

A rk:l!Jl"n;;.

(50) .Wintel's Dairy Company, 1\larshallown , Iowa.(51) East End Dairies , Inc. , Indiana.polis, Indiana.

P.o\R. 7. In 'a series of transaetions beginning in January, 1951

Borden acquired all or part of the assets of dairy ;product concernslocated in twenty-two Stutes , which ,,,ere individually owned and werenot corporations. Such acquisitions include the foJJowing:

(1) Arthur B. Hall , Haddam , Connecticut.(2) R. J. Webb, Kermit, 'Vest Virginia.(3) \Vilsan Ice Cream Company, Bloomington , Illinois.(4) Meadowbrook Dairy, Santa Cru, California.(5) Blanco Dairy, Watsonvile, California.(6) Eastland Creamery, Eastland, Texas.

(7) James Clark ucson , Arizona.(8) Flint Ideal Dairy, Tuscan , Arizona.(9) South Texas Producer s Association , \Vaco , Texas.

(10) Quality Dairies, Pensacola, Florida.(11) Pipldn Farms Dairy, Lakeland, Florida.(12) Vinson s Dairy, Fort Valley, Georgia.

(13) Modern Creamery, Gilroy, California.(14) Sam L. lms , No. Little Rock , Arkansas.(15) Scoggins Ice Cream Company, Oklahoma City, Oklahoma.(16) Triangle Dhtributing Company, Carlsbad, Xew :.1exico.

(17) Harms Dairy, Savannah , Georgia.(18) Various :Milk Routes , Tuscon , Arizona.(19) Savannah Ice Cream Co. , Savannah , Georgia.(20) St. -,wdrews Bay Dairy, Panama City, Florida.

THE BORDEN C01v1PAN :JOl

20() Complaint

(21) Elco Dairy, ",Vaxabachie, Texas.

(22) Lon s Dairy, Stowe, Ohio.

(23) Frymuth's Ice Cream Co., El Pa , Texas.(24) Gold ::ledal Dairy Products, Ocala , Florid!.,(25) Pine Ridge Dairy, Leesburg, Florida.

(26) Ramer s Dairy, Sebring, Florida.(27) ::landis Stocl Farms & Dairy, A yon Park , Flol'ilta.(28) Carmel Dairy, Carmel , California.(29) Purity .Milk Company, J'eridian , ::\IssLssippi.(30) Lanes Creamery, Jackson , Mississippi.(31) Purity Ice Cream Co" Hot Springs, Arkansas,

(32) :Jlaud Maid Ice Cream Company, ,jIaud , Texas.(33) Lake Wales Dairy Co. , Lake .Wales , Florida.(34) 1elba Creamery, Mobile, Alabama.(35) Mansfield Dairy, Gainesvile, Florida.(36) Nacogdoches Ice Cream Co. , Kaeogdoches, Texas.(37) Clearwater Jersey Dairy, Clearwater, Florida.(38) Forman s Sanitary Dairy, Ft. Lauderdale , Floridn.(39) Schmid ::IiJ Company, Sarasota , Florida.(40) Ponder s Ice Cream Co., Greer , S.(41) Georgia Better ::Iilk Farms Dairy, Culyerton , Georgia.(42) Sanders Ice Cream Co. , Estervile , Iowa.(43) Mils Dairy, Hndson, Ohio.

(44) Garmon Ice Cream Co. , Greenvile, 1\Iississippi.(45) Shamrock Dairy Products Co. , Lafayette, Louisiana.(46) Lucerne Jersey Farm , Augusta , Georgia.(47) Wren Farms , 'Vaukesha , 1,Visconsin.(48) John E. 1,Vampler , Redford , Indiana.(49) Charlie 0, and Mary V. Pettit. Punta Garda , Florida,(50) Harry L. Crisp, ::Iarion , Illinois.(51) .Jack R. I-ealan (Healan Ice Cream Cornpan ), Rock Hill , Sout'

Carolina.(52) 1,Vayne ::1. Johnson , Joliet , Illinois.(53) Walter J. Runyan , W'arshaw , Indiana.(M) John 1,V. and Esther F. Shultz (Bon Acre Farms), Galena , Ohio.

(55) Arthur C. and Dora Plautz , Beloit, Wisconsin.(56) Orrin Merritt (Genoa Dairy) , Genoa , Illinois.(57) Edward Campbell (Campbell Dairy), Knox, Indiana.(58) Theophil J. Doering and Leo F. Engleton (City Dairy), nen sclaer

Indiana.(:'9) \ViIJam Zirsenhence (Grade " A" Dairy). Rochester , Indiana.(GO) Harold ::fitchel (M &::1 Dairy Service), Goshen , Indiana.(61) Hayden Patz and H.alIJh Chrbman (Plymouth Dairy), Pl.'Ilonth

Indiana.(62)(63)(64)(65)((Ji)(67)

Yorl) Jack Wis el1 , Streator , Illinois.

Louis F. Yenezia , Jr.. Long Branch. ew Jersey.Joseph Scgaert , LaSalle, Illinois.Russell H. Oe chel , Dixon , IllinoiGene E. Kelly and Gladys IV. ::els011 AudulJOn , 10"'3.T110mflS and WiJiflll IValsb , Ottawa , Illnois.WilJiam I-. Voorhees (Knickerbocker Farms Dairy), Amsterdam , New

302 :FEDERAL TRADE COMMISSION DECISIOXS

Complaint 63 F.

(69) Joseph Hines and Harry Taylor , Watseka , Illinois.(70) Robert Jones, Sr. , Rubert Jones, Jr., and Gertrude Jones (Jones Dairy),

Gilman, Illnois.(71) Fred Knee (J.Jvel'pul'c Dairy), Champaign , Illinois.

(72) Harold A. Peterson and Leroy P. JIerritt (Borden Belvidere Distributor),Belvidere, Illnois.

(73) Wayne Hart, Rochelle, Illnois.(74) John Gramo , Lodi , New Jcrsey.(75) Donald Quasebarth , Manon , Indiana.(76) David F. McCarter and Robert J. McCarter, Jr. (:\lcCarter s Quality

Dain' Products), St. Augustine, Florida.(77) George B. Smith , Trustee of the Estate of Charles \V. .Wiliams (.un-

sterdam Dairy), Schenectady, Kew York.

(78) :M-al'vin McNitt (Lakell1ml Ice Cream Company), Cheboygan . :\ficlJi,gal1.

(79) Carl F. and Richard C. Lemnitzer (Cadilac Ice Cream Compau;\' ). Cadil-lac , :\Iichigan.

(80) Edward Arden, d/b/a Arden Farms Dairy, Valparaiso , Indiana.(81) John D. Eberhard ami Kelda I. Eberhard, Redmond , Oregon.

PAN. 8. Dorden s grcat size and financial resources , in relation to thatoT its competitors , together with its product and geographical diver-sification , may gi,.e ancl have given Borden the power, in the courseand conduct of its business, to do among other things , the following;

(a) Expend sllbstnntiaJ sums to make interest or non- interestbearing loans to c.ustomers and pote.ntinJ customers.

(b) iake loans of equipment a,nd facilities in substantioJ amountsto its customers and potential customers.

(c) Sen equipment ancl facilities to cl1stomersand potential cus-t.omers at prices that are substantially less than the market value ofsaid equipment and facilities.

(d) Pay substantial sums in the form of rebates to customers andpotcntial customcrs in adva,l1ce of being earned.

(c) Make substantial payments to customers and potential cus-t.omers in t.he form of gifts and gratuities.

(f) Expend substantiaJ sums for performing service of value for itscust.omers; e.g. , repa.inting the customer s cstablishment.

(g) Charge fftvorec1 enstomers and potelltia.1 customers discriminatory pric.es.

(h) Expend substantial sums to promote its various brands throughac1ver6sing and other promotions.

(i) Hire key employees of competitors eliminated through Bordenacquisitions.

(j) Enter into express or implied agreements or understandings

with customers and potential cust.omers which may ha.ve and do havethe effect of excluding competitors;

PAR. 9. The aequisitions listed in Paragrapl1s Six and Seven hereineitheT individually or c011ectivel:,r , may have the effect of substnnt.ially

THE BORDENCOMPA 303

296 Order

lessening conlpetition or tending to create a monopoly in the foJ1my-ing ways, among others:

(a) Industrywide concentration of the purchase, manufacture

processing or distribution of dairy products has been incrcased;

(b) Actual and potcnti,tJ competition between Borden and the ac-quired corporations in the purchase, manufacture , processing or c1ish'i-bution of dairy products maT be or ha,ve been eliminated;

(c) The acquisitions by Borden ma,y enhance Borden s competitiveadvantage in the purchase, manufacture , processing or distributionof da.iry procluets t.o the detriment of nctual or potential competition;

(d) The acquisitions provide Borden with additional facilitics"\vhich Borden may utilizc to extend practices identical or similar tothose hereinbefore described in Paragraph Eight to the detriment ofactua.l or potential competition;

(e)' Competitive manufacturers , purchasers , processors or distrib-utors of dairy products may be foreclosed from a substantial segmentof the market in that Borden has eliminated the acquired corporationsas potent.ial suppliers or customers;

(f) Independent business concerns haTe been e.liminated from theDIliry Products Industry;

(g) Actnal and potential competition in the purchase , manufac-ture , processing or distribution of dairy products may be substantiallylessened.

PAn. 10. The foregoing acquisitions a.lleged and set forth in Para.-graph Six constitute a yjolation of Section 7 oJ the Clayton Act (15

c. Sec. 18).

PAn. 11. The constant and systematic elimination of actual and po-te.ntial competitors and otherwise lessening of competition by theeans of the acquisitions described .in Paragraphs Six and Seven

herein are aJJ to the prejudice and injury of the public and constituteunfair methods of competition nndunfair acts and practices in com-merce withil1 the intent and meaning of Section 5 of the Federal TradeCommission Aet.

PAn. 12. The foregoing acquisitions, acts and practices , as herein-before aJJeged and set forth , constitute a violation of Section 5 of theFederal Trade Commission Act (15 liS.C. Sec. 45).

OnDER ACCEPTING AGREE:lIE T COXTAIXIXG OnDER TO CEASE X '\D

DESIST

This matter having come before the Commission upon the hearingexaminer s certification of the. agreement between the parties contnin-ing a eonsent order to cease and desist, and it appearing that the

304 FEDERAL TRADE COJ.IMISSION DECISIONS

Order 65 F.

agreement that has been entered into affords an adequate basis for anappropriate disposition of this proceeding and should be acceptedand that. the Commission itself should initial y deC"ide this matter, andforthwith issne its decision fLnc1 order:

The agreement. is hereby accepted , the following jnrisdictional find-ing-.s are made , and the folJowing order is entered:

1. Respondent is a corporation existing and doing business nnderand by "irtnc of the laws of the State of Kew .Tersey \vjth its prin-cipal offce and plaee of businpFOs located at 350 ),fac1ison Avenue, inthe city Rnd StRte .of X ew York.

. The, Federal Trade Commission has jurisdiction over the subjectmatte.r of this proceeding and of the respondents.

It i8 ordered That The Borden Company \vithin a period not ex-ceeding eighteen (IS) months after the ervice upon it of this orderunless extended , ::11a11 divest itself absolutely and in good faith , subjectto t.ho prior approval o the COllmission of:

A. All assets, properties , rights and privileges , tangible and intan-gible including but not 1imited to , aU plants , equipment, trade namestrademark , and good'\yill acquired by The Borden Company as aresult of the acquisition of the capital stock of Carlson-Frink Com

pnny, which are nmv used ill the business so acquired , together with.111 plants , maehinery, building' , improvements, equipment and otherproperty of whatever description which have been added to the prop-erty of Carlson-Frink Company and are now used in the business ,lcquired , in sllch manner as to restore it as a going concern in theprocessing, di6tribution and sale of fluicl milk, buttermilk, cream anclcottage cheese , and in the. manufacture, distribution and sale of icecream , ice milk, sherbets and water ices in the following counties:

Colorado

Adams.-1'paboeBacaBoulderClear Creek

CnsterJ)f:l1yerDouglasEI Paso

ElbertFremontGilpinGrandTeffer:5onKit Carson

LarimerLogan)lorgall

PhilipsPro\versPuebloSedgwickTeller\Vashington,VeldYuma

Neb1.askaCheyenne Deuel

New Jfea:coColfax "Guion

THE BORDEI\ CO:.lP.-\XY 305

2(6 Order

B. All assets, properties, rights and privileges, tangible and intan-gible, including but not limited aJJ plants, equipment, trade namestrademarks and goodwiJ acquired by The Borden Company as aresult of the acquisition of the capital stock of Hyde Park DairiesInc. , which are now used in the business so acquired , together withall plants , ,maehinery, buildings, in1pl'ovements, equipment and a11

other property of whatever description which have been added to the

property of Hyde Park Dairies , Inc. , and arc now used in the .businessso acquired, in such manner as to restore it as a gOIng concern in theprocessing, distribution and sale of fluid milk, buttermilk , half & halfcream and eottage cheese , and in the distribution and sale of ice creamice milk nnd sherbets in the follmying counties in I(ansas:

BarberBartonButlerCowleyI'JllsworthHarper

HarveyKingmanPa'YJJeeRenoRiceSedgwick

StaffordSumnerRushRussell

C. AJI assets properties, rights ncl pl'ivilcges t.angib1e and intan-gible, including but not limited all plants , equipment , tl'flc1e namet:trademarks and goodwill acquired by The Borden Company as aresult of the acquisition of the asset.s of Sani-Seal Dairies , Inc. , whiehare now used in the business so acquired, together with all plantsma-chinel'Y, buildings , improycments , equipment and other propertyof whatever description which have been added to the property ofSani- Seal Da:iries Inc. , and are now used in the business so acquiredin such manner as to restore it as a going concern in the prncessing,distribution and sale of fluic1milk , buttermilk , haH S;:. half ana eream

in the following towns and counties in :JIichigan :

1'01(;/18

AtlantaBellBentleyBirch RunBridgeportCarSODvileCarrolltollCliffordColemanColumbiavilleCrumpDa .ison

Deckervile

EaSil LakeEdenyileFrankenmut.hFreelandHemlockHilmanLapeerLewiston::larlette::icGregor:\lerril:\IidlandMount Pleasant

Xorth Bradley

XOl'th BmncbXorth PointPinconnillgPort Sanilac

Presque IsleSaginawSanduskySanfordSnoverSt. LouisWatertownzn wa ukee

306 FEDERAL TTIADE COMMISSION DECISIO

Order 65 F.

Coumties

AkanaAlpenaArenacBay

ClareGladwinHuronlaseD

OgeniawOscodaHoscommon'ruseola

D. All assets, properties, Tights and privileges , tangible and intangible , including but not limited to, all plants, equipment , trade namestrademarks, and goodwi1 acquired by The Borden Company as aresult of the aequisition of the assets of Farmers Dairy ManagementInc. , 'I hich arc now used. in the business so acquired , together witha11 plants, machinery, buildings, improvements, equipment and otherproperty of whatever description which have been added to the prop-erty of Farmers Dairy :Management , Inc. , and are now used in thebusiness so acquired , in such manner as to restore it as a going concernin the processing, distribution and sale of fluid milk, buttermilk, haJf& haJf , cream and cottage chccse in Hamilton County, Ohio and thefollowing towns in Ohio:BethanyCollege CornerFairfieldHamiltonHuntsvile

lIIandvile:\iilvileXew MiamiOverpeckOxford

PisgabSeven Mile

SomervileWest Chester\Viliamsdale

E. All assets , properties rights and privileges , tangible and intan-gible, including hut not limited to , all plants , equipment, trade namestrademarks and goodwil acquired by The Borden Company as aresult of the acquisition of the assets of Dinsmorc Dairy Company,'Ivhich are nm'\ used in the business so acquired , together with allmachinery, buildings , improvements , equipment and other propertyof whatever description which have been added to the property ofDinsmore Dairy Company and are now used in the business so ac.qui red, in such manner as to restore it as a going concern in thedistributiou and s"lc of fluid milk, buttermilk , haJf & half and butterin the following towns in Florida:Atlantic BeachFernandina Beach

J acksollvile

Jacksonvile Beach

)la portXeptune Beach

NeilPonte Veclra BeachYulee

F. All assets properties , rights and privileges , tangible and intangi-ble , ineluc1ing but not limited to all equipment, trade names , trade-marks and go()chdll acquired by The Borden Company as a result orthe acquisition of the assets of the Continental Frozen De seTts Com-pany, which are DOW used in the, business so ftcquired , together with allmae-hinery, buildings , improvements , equipment and other propert.y ofwhatever description which have been added to t.he property of Con-

THE BORDE COMPANY 307

296 Order

tinental Frozen Desserts Company and are now used in the businessso acquired , in such manner as to restore it as a goingeoncern in thedistribution a.nd sale of ice cream , ice milk , sherbets and water iecsin the District of C01umbia , Arlington County, Virginia and thefoJJowing towns in Maryland:Andrews Air Force BaseBethesdaErentwoodCamp pringsCheltenhamCl1eyy ChaseClinton

College ParkEast Pines

Forest HeightsGlassmanol'HyattsvilleLangley Park:1Iorningside

:\It. Rainier()xonHilRockvi1eSilver SpringSuitlandTakoma ParkWheaton

G. All assets, properties, rights and privileges, tangible and in-tangible, including but not 1imited to , all equipment, trade namest.rademarks , and goodwill acquired by The Borden Company as a resultof the acquisition of the assets of the unincorporated dairy businessof David F. )fcCarter doing business as ::IcCa.rtcr s Qua1ity DairyProducts and Robert J. IcCarter

, .

Jr. (hereinafter referred to as

l\IcCarter ), whieh are now used 1n the business so acquired , to-

gether with all machinery, buildings , improvements , equipment andother property of whatever description which have been added to theproperty of )IcCarter s and are now used in the business so acquiredin such manner as to restore it as a going concern in the distributionand sale of fluid milk in the following towns in Florida:College Park Moultrie St. Augustine BeachCrescent Beach St. Augustine Vilano Beach

1-1. All assets, properties, rights and privileges , tangible and in-tangible , including but not limited to, all plant.s , equipment, tradenames , trademarks and goodwill acquired by The Borden Companyas a result of the acquisition of the assets of the unincorpontted dairybusiness owned by .John D. Eberhard and his wife , Kelda I. Eberhardat Redmond , Oregon (hereinafter referred to as "Eberhard" ), whichare now used in the business so acquired , together w1th all plantsmachincry, builcli11gs, improvements , equipment and other property of

hatever description which have been "drIed to the property of Eberhard and are now l1 ed in the business so acquired , in such manncr asto restore it as a goillg concern in the purchasing and processing ofraw milk se.c.ured from producers 10cated ill the following counties inOregon:

Crook Dpschntes Jefif'rSOll

By sueh divestitures , uncleI' t.he. te.rms set forth in paragraphs Athrough 1-1 above. none of the stock, assets , rights or privilege.

308 FEDERAL TRADE CO:\IMISSIO DECISIO

Order 63 F. 1'.

tangible or intangible , acquired 01' added by respondent, shall be sold 01'transferred , directly or indirectly, to anyone who , immediateJy fol1ow-ing the respective divestitures , shan be a stockholder holding morethan one-half of 1 % of the outstanding stock of the respondent , anoffcer, directol' representative , employee 01' agent or othenvise direetlyor indirectly connected ,vith or under the control of the respondent.

II.

Pending divestiture , respondent shall not make an: changes in theplants , machinery, buildings , equipmcnt or other property of 'Ivhat-ever c1cseription which shall material1y impair their present rate ofcapacity for the processing, distribution or sale of fluid milk or relatedproducts (such as , where applicable, buttermilk , half & half , creamcottage cheese and butter), ice cream , ice mill , mellol'illc , sherbets

or ,yater ices, or their market value : unJe s said capacity or value

restored prior to divestiture.III.

Respondent shall divest itself of the above-identified a ts of Ca!'J-

son-Frink Company, I-Iyde Park Dairie , Inc. , Sa.ni- Seal Dlliries , Inc.Farmers Dairy :Managcment, Inc" Dinsmore Dairy Company, Con-t.inental Frozen Deserts COmpa11:Y, :McCartel' s and Ebel'hal'd:n the

fonmying manner and subject to the following c.onclitions:A. Beginning promptly after the date of service of this order upon

respondent by the Commission , respondent shall make diligent efIortsin g;ooc1 faith to sell the above- identified assets of the above namedeight cor:ccrns in the manner set fort.h ill Section I abm-e and :oha11

continue such efforts to the end that the "de thereof sha1l be effectedwithin the aforesaid period of 18 months. Respondent shall submitto the Commission sllmmary reports of t.he efforts made by rC'spondcntto obtain or eliseovcr purchasers 01' potential purchnsers , and respond-cnt shall submit to the Commission summaries of cOllvcrsations ofaut.horized representatives of respondent ,yith potential purchasers01' their representatives relating to the sale of such f\ssets l1nd : sub-ject to any legally recognized privilege copies of all written com-

munications pertaining to negotiations , offers to buy 01' indications ofintere t in the acquisitions of the ,,,hole or a part of the assets inquestion , ,yithin 15 days after the. termination of tl1e calendar monthin whieh the conversations occnrrec1 01' the cornmunications ,yeresent or receiyec1 by respondent.

B. If complete divestiture sha.llnot ha.\e been accomplished ,yjthinthe aforesaid period of 18 months or f\ny extension of said periodwhich the Commission may grant , the Commission will give respondentnot.ice and afford it an opportuni1',y to be heard before the Commission

THE BORDE COj\lPANY 309

!U; Order

ues ilJlY further order 01' orders ,, hich the Cornmissioll l1RJ' deem:tppl'oPl'iate.

C. For the protection of the purchaser or purchasers of the CarlsollFrink Company assets , respondent shall not sell fluid milk , buttermilken:am , cottage cheese , ice cream , ice milk, sherbets 01' ,yater ices for a

period of five yea.rs from the effective date of the sale of sneh assets inor for the purpose of resale in the counties listed in paragraph A inSection I above.

D. For the protection of the pU1' haser or purchasers of the J-IydePark Dairies , Inc. , assets , respondent sha.ll not sell fluiclmilk , butter-Jnilk , half & half, cream cottage cheese, ice cream , ice milk or sherbetsfor a period of five years from the efi'ective c1nte of the sale of snehasset.s in or for the purpose of resale in the counties listed in paragraph13 in Section I above.

E. For the protection of the purchaser or purchasers of the Salli-Seal Dairies, Ine. , assets , respondent shall not sell fluid milk

, '

butter-milk , half & half or cream for a period of five years from the effectivedate of the sale of such assets in or for the purpose of resale in any ofthe towns and counties listed in paragraph C in Seetion I abovc.

F. For the protection of the pllrchaser or purchasers of the FarmersDairy l\lanagement , Inc. , assets , respondcnt shall not sell fluid milkbuttermilk , half &; half, cream or cottage cheese for a period of fiveyears from the effective date of the sale of such assets in or for thepurpose of resa1e in the towns and eonnty 1isted in paragraph D insedion I above.

G. For the protection of the purchaser or purcha.sers of the Dins-morc Dairy Company assets , respondent shall not sell fluid milkbuttermilk , half & half or butter for a period of Jive years from lheetrec.ive date of the sale of snch assets in or for the purpose of resalein the tmvns listed in paragl'fLph E in Section I above.

1-1. For the protection of the purchaser or Pllrchasers of theCOllhnental Frozen Desserts COlnpfLllY assets, respondent shall not se11ice cream , ice Inilk , sherbets or vmter ices for a period of five years fromthe effcctive date of the sale of such assets in or for the pnrpose ofresale in the District of Columbia and the county and to"ns listed inparagraph Fin Sectjon I above.

I. For the protection of the purchaser or purchasers of the assets

of McCarter , respondent shaJJ not seH fluid milk for a period of

five years from the effective date of the sale of such assets in or for

the purpose of resale in the towns listed in paragraph G in Section Iabove.

r. For the protection of the purchaser or purchasers of the assets

of Eberhard , respondent shall not sell cream or butter for a period of

310 FEDERAL TRADE CO BnSSION DECISIOXS

Syllabus 65 l!'

five years from the effective date of the sale of such assets in or ror

the purpose or resale in the counties listed in paragraph H in Section Iabove, and shall not purchase raw milk for the same period from pro-ducers located in said counties.

K. 'Within sixty days after divestiture of the assets of each of theeight concerns listed above in paragraphs C through J, respondentshall file with the Commission a report. in writing setting forth in detailthe manner aud form in which it shall have complied with the terms ofthis Order with respect thereto.

L. Respondent is not required by this Order to sell , license or inany way convey and rights to any of its trademarks or trade namesincluding "Borden , not acquired from the eight concerns listedabove.

IV.

It is furtlzu ol'deTed That for a period of ten years respondent shallcease and desist from acquiring, directly or indirectly, through subsidiaries , or otherwise, the whole or any part of the stock , share capitalor assets (other than products sold in the course of business) of anydomestic concern, corporate or noncorporate, engaged principallyor as one of its major commodity lines at the time of such acquisitionin any state of the United States or the Distriet of Columbia in thebusiness or manufacturing, processing or selling at wholesale or onretail milk routes (a) fluid milk, (b) ice cream , ice milk, melloriuesherbets or water ices, (c) natural or processed cheese, or (d) butterwithout the prior approval of the Federal Trade Commission.

Ix THE MA TI'ER OF

2361 ST.'\.TE CORP. ET AL.

COXSEXT ORDER, ETC. , IX REARD TO TUE ALLGED VIOLATION OF THEFEDERAL TRDE CO DfISSION ACT

Docket C-7B5. Complaint , Apr. 19G4 Deci8i.on , Apr. , 1964

ConsC'nt order requiring Chicago manufacturers of mattresses , box springs andotber bedding products, to cease representing falsely by attaching to theirmattresses labels upon wbich fictitions and excessive amounts were printedtbat such amounts did not exceed the bighest price at \..bich substanti-al saleswere made in their trade area; and by use of such ",' ords on labels asORTHOPEDIC" along with a picture of a man in white jacket that the

mattresses ,,,ere specially designed to prevent or correct body deformitesand were prescribed by doctors.

2361 STATE CORP. Err AL. 311

310 Complaint

COl\fPLAr:

Pursuant to the provisions of the Federal Trade Commission Actand by virtue of the authority vested in it by said Act, the FederalTrade Commission , Imving reason to belie'm that 2361 State Corp.a corporation (formerly known asA. Brandwein & Co. ), and IIal'ryT. Brandwein and Sidney L. Brandwein, individually and as offcers

of said corporation , hE'Tcinafter referred to as respondents , have vio-lated the provisions of said Act, and it appearing to the Commissionthat a proceeding by it in respect thereof would be in the public in-terest, hereby issues its complaint, stating its charges in that respectas follows:

P ARAGRAPlI 1. Respondent 2361 State Corp. (formerly known as

A. Brand,vein & Co. ) is a corp'oration organized , existing and doingbusiness under and by virtue of the laws of the state of Illinoiswith its principal offce and place of business located at 2361 SouthState Street, Chicago 16 , Illinois.Respondents Harry J. Brandwein and Sidney L. Brandwein are

offcers of the corporate respondent. They formulate, direct and con-trol the policies, acts and pra.ctices of the corpor(lte respondent ill-clnding the acts and practices hereinafter set forth. Theil' address isthe same as that of the corporate respondent.

PAR. 2. Respondents are now and for some time last past have beenngaged in the advertising, manufacturing, sale and distribution of

mattresses , box springs and other bedding products to reta.ilers forresale to the public.

PAR. 3. In the course and conduct of their business , respondentsnow cause, and for some time last past have caused, their productswhen sold , to be shipped from their place of business in the State ofIllinois to purchasers thereof located in the various other States of theUnited States, and maintain , and at all times mentioned herein , havemaintained, a substant.ial course or trade in said products in com-merce, as "commerce" is defined in the Federal Trade Commission Act.

PAR. 4. Respondents , for the purpose of inducing the purchase oftheir mattresses, have engaged in the practice of attaching, or caus.ing to be attached , to their mattresses labels upon which certainamounts are printed thereby reprcsenting, directly or b;y implicationthat said amounts do not appreciably exceed the highest price at whichsubstantial sales aT the pretickctecl article arc made ill respondentstrade area. In truth and in fact said amounts are fictitious and are ap-preciably in excess of the highest price at which substantial so.1es ofsaid pretickctcd article are made in respondents ' trade area.

PAR. 5. R.espondents, in the course ancl conduct of their business

and for the purpose of inducing the sa.1e of their mattresses, ha ye

312 FEDERAL TRADE COM:rnSSION DECISIONS

Complaint 65 F,

engaged in the practice of attaching or can sing to be attached to theirmattresses labels which contain statements, representations and de-pictions of which the following are typical but. not aU inclusive.

ORTHO-PEDICDE LUXE

CITATIOXSCIEXTIFICALLY COXSTRUCTED

FOR PROPER SUPPORT1.1 )cpictiol1 of a 'woman reclining 011 a mattress. Standing to one side is a

!lJftn ill w11ite jacket, ohstensibly a Doctor, writilJg a prescription.

Created exclusively byA. BIL-L'\DWEI!\ and CO. , CHICAGO , ILL.

Beauty Bracer

ortllo-pedic type construction

m. G. By and through the tlse of the aforesaid statements anc1l'ep-l'esentations appearing on labels respondents have represented directlyor indirectly:

1. Through the use of the name " Ortho-Pedic" and the statementorthopedic type construction ' alone or in conjunction with the vari

DUS stat.ements and representations above set forth relating to said

mattre,sses that said mattresses have been specially designed andconstructed so as t.o prevent , correct or afford substantial relief wit.hrespect to a p('eific. body deformity or deformities and accord ,,"ithrecommendations of orthopedic authorities respecting design flnd con-struction of ma.ttresses for the prevention, correction or relief of snchdeformity or deformities.

::. That doctors or the medical profession prescribe the n."e of mat-tI' esses manufactured and sold by respondents.

p-,

\TI. 7. In truth and in fact:1. Said mattresses have not been special1y designed and construetcll

so as to prevent , correct or afford substantial relief ,,"ith respect t.o aspecific body deformity or deformities and do not. accord with rccom-mendations of orthopedic authorities respecting design and construc-tion of mattresses for the prevention , correction or relief of snch de-fOl'nity or deformities. Said mattresses are stock mattresses which aregenerally antihlblc and indiscriminately offered for sale and sold tothe consuming public.

2. Doctors or the medical profession do not prescribe the use ofmattresses manufactured and sold by respondents.

Thel'e.fore the statements and representations as set forth in Para-graphs Five a.nd Six hereof ,"Vere and are false , misleading anddecepti ve.

2361 STATE CORP. ET AL. 313

310 Decision and Oroor

PAR. 8. Respondents, by labeling their mattresses in the maImeraforesaid have placed in the hands of retailers and others the meansand instrumentalities by and through whieh they may mislead thepublic as to the usual and customary retail priee of said mattresses,the savings afforded to customers thereof and the therapeutic prop-

erties of said mattresses.PAR. 9. In the conduct of their business, at all times mentioned here-, respondents have been in substantial competition , in commerce

with corporations, firms and individuals in the sale of mattresses of

the same general kind and nature as those sold by respondents.PAR. 10. The use by respondents of the aforesaid false, misleading

and deceptive statements , representations and practices has had, andnow has, the capacity and tendency to mislead members of the pur-chasing public into the erroneous and mistaken belief that said state-ments and representations were and are true and into the purchase ofsubstantial quantities of respondents ' product by reason of said erro-neous and mistaken belief.

PAR. 11. The aforesaid acts and practices of respondents, as hereinalleged, were and are a11 to the prejudice and injury of the public andof respondents ' competitors and constituted , and now constitute, un-fair methods of competition in commcrce and unfair and deceptiveacts and practices in commerce, in violation of Section 5 of the Fed-eml Trade Commission Act.

DECISIOX AND ORDER

The Federal Trade Commission having initiated an investigation ofcertain acts and practices of the respondents named in the captionhereof, and the respondents having been furnished thereafter with acopy of a draft of complaint which the Bureau of Deceptive Practicesproposed to present to the Commission for its consideration and whichif issued by the Commission , would charge respondents with violationof the Federal Trade Commission Act; and

The respondents and counsel for the Commission having thereafterexecuted an agreement containing a consent order, an admission bythe respondents of all the jurisdictional facts set forth in the aforesaiddraft of complaint, a statement that the signing of said agreement isfor settlement pnrposes only and does not constitute an admission bythe respondents that the law has been violatcd as alleged in such com-

plaint, and waivers and provisions as required by the Commissionrules; and

The Commission , having reason to believe that the respondents haveviolated the Federal Trade Commission Act, and having detsrminedthat complaint should issue stating its charges in that respect, hereby

313- 121--70--


Decision find Order 65 F. 'l'

issues its complaint, accepts saiel agreement, makes the follo\"-ing juris-dictional findings and enters the following order:

1. Respondent, 23q1 State Corp. , which corporation was formerlyknown as A. Brandwein & Co. , is a corporation organized , existing,and doing business under and by virtue of the laws of the State ofIllinois , with its offce and principal place of business located at 2361South State Street , Chicago 16 , Illinois.

Respondents I-Iarry J. Brandwein and Sidney L. Brandwein areoffcers of the corporation and their address is the. same a that of the

corporation.2. The Federal Trade Commission has jurisdiction of the subject

matter of this proceeding and of the respondents, and the procee,dingis in the public interest.

ORDER

It is ol'de'ie(l That respondents 2361 State Corp. , a corporation (for-merly known as A. Brandwein &, Co. ), and its offcers , and Harry .I.Brandwein and Sidney L. Brandwein , indiyidnally and as offcers ofsaid corporation, and respondents agents, representatives and e.m-ployees, directly or through any corporate or other device, in C011leC-

tion with the offering for sale , sale or distribution of mattresses, boxsprings, bedding products or any other article of merchandise in com-merce as "commerce" is defu1ed in the Federal Trade Commission Actdo forthwith cease and desist from:

1. The act or practice of preticketing merchandise at an incli-cated reta.il price or otherwise disseminating or advertising a listsuggcsted or other indicated retail price for respondents ' merchan-dise: P1'vided , howeve' That it shall be a defense in any enforce-ment proceeding instituted for violation hereof, for respondent.s toafrmatively establish that such indicated retail price was dissem-inated or advertised in good faith and has not appreciably ex-

ceeded the highest price at which substantial sales of such articJewere being made in respondents ' trade area.

2. Misrepresenting, directly or indirectly, the retail price at

which respondents ' merchandise is sold in respondents ' trade areaor the reta.il price at which respondents ' merchandise is sold inthe trade area of any distributor or dealer in respondentsmerchandise.

S. -Using on labels or in any other manner depictions of doctorsor members of the medical profession or representing, directly orindirectly, that members of the medical profession prescribe theuse of respondents' mattresses or other bedding products.

4. 17 sing the word orthopedic or any variation thereof or thestatement "Ortho-pedic type construction" or any other word

FRk K G. SHATTUCK CO. ET AL. 315

310 Complaint

term or statement of similar import or meaning in reference toor as descriptive of any said products: Provided, however Thatit shall be a defense in any enforcement proceeding instituted forviolation hereof for respondents to establish affrmatively that:

(a) The product involved has been specially designed andconstructed so as to prevent, correct or afford substantial

relief with respect to a specific body deformity or deformities;(b) The dcsign and construction of such product accords

with recommendations of orthopedic authorities for the pre-vention , correction or relief of snch body deformity ordeformities; and

(c) In using said word, term or statement, as aforesaid, itwas accompanied by a designation of the kind or kinds ofbody deformities for which the product involved had been so

designed and constructed.5. Furnishing or otherwise placing in the hands of retailers or

dealers of said products the means and instrumentalities by andthrough which they may mislead or deceive the purchasing publicin respect to the things hereinbefore prohibited.

It is furthe1' ordered That the respondents herein shall, within sixty(60) days after service upon them of this order, file with the Commis-sion a report in writing setting forth in detail the manner and formill which they have complied with this order.

h' 'TIlE MATrR OF

FRANK G. SHATTUCK COMPANY ET AL.

ORDE OPINION , ETC. , IN REGARD TO TII .'\LGED VIOLATIOK OF SEC. 2 (a)OF THE CLAYTON ACT

Docket 7743. Complaint , Jan. 1'2 1960-Decision , Apr. 22, 1964

Order dismissing complaint which charged four afflia ted firms in the candy andconfectionery business with price discrimination in violation of Sec. 2(a) oftbe Clayton Act. As to three of the respondents there was insuffcient eyi-dence to support the allegations of the complaint; as to the fourth respondentthe record supported the defense of good faith meeting of competitors ' prices.

COMPLAINT

The Federal Trade C01T1111ssion , ha.ving reason to believe that theabove-named respondents have violated a.nd are now violating Sectiol1

316 FEDERAL TRADE JMISSION DECISIOXS

Complaint 65 F.

2(a) of the amended Clayton Act (U. C. Title 15 , Sec. 13), herebysues its complaint as follows:PARAGRAH 1. Respondent Frank G. Shattuck Company is a cor-

poration organized, existing and doing business under and by virtueof the laws of the State of Massachusetts with its principal offce andplace of business located at 50 IV est 23rd Street, N ew York, N ew York.This respondent also maintains an offce at 18 Wes Street, in BostonMassachusetts.

Respondent W. F. Schrafft & Sons Corporation is a corporationorganized, existing and doing business under and by virtue of the lawsof the State of Massachusetts with its principal offce and place ofbusiness located at 529 Main Street, Charlestown , Boston, Massa-chusetts. This respondent is a wholly owned subsidiary of the FrankG. Shattuck Company.

Respondent Schrafft's Sales Corporation is a corporation orga-nized, existing and doing business under and by virtue of the laws ofthe State of Delaware with its principal offce and place of businesslocated at 133-34 36th Road , Flushing, New York. This respondent isalso a wholly owned subsidiary of the Frank G. Shattuck Company.

Respondent Wallace & Co. is a corporation organized , existing anddoing business under and by virtue of the laws of the State of NewJersey with its principal offce and place of business located at 460

Smith Street, Brooklyn, New York. This respondent is also a whollyowned subsidiary of the Frank G. Shattuck Company.

PAR. 2. Respondents are engaged in the business of manufacturing,distributing and selling candy and confectionery products. Respond-ents ' total sales for the year 1958 were approximately $56 000 000.

PAR. 3. These products were sold by respondents for use, consump-tion, or resale withi the United States and respondents caused themto be shipped and transportd from the state of location of theirprincipal places of business to purchasers located in States other

than the State in which the shipment or transportation originated.PAR. 4. Respondents maintain a course of trade in commerce, as

commerce" is defined in the amended Clayton Act, in such productsdescribed, among and between the States of the United States.Respondent W. F. Schrafft & Sons Corporation maintains and

operates a manufacturing plant located in Charlestown near BostonMassachusetts. From this plant it ships and sells throughout theUnited States to various purchasers located in the several States ofthe United States , including New York.

FRANK G. SHATTUCK CO. ET AL. 317

315 Complaint

Respondent Wallace & Co. maintains and operate a manufacturing

plant located in Brooklyn , New York. Through its jobbers, includigrespondent Schrafft's Sales Corporation , respondent Wallace & Co.ships and sells its candy products throughout ,the United States tovarious purchasers located in the several States of the United States.

PAR. 5. In the course and conduct of their business in commerce,

respondents are discriminating in price between different purchasers

of their products of like grade and quality by selling to some pur-

chasers at higher and less favorably prices than they sell to otherpurchasers competitively engaged in the resale of their products withthe non-favored purchasers.For example, in the distribution and sale of their candy products,

respondents have consistently charged independent retailers list priceand have granted the variety and drug chains list price less 10%. ToiInstrate , in Niagara Falls, New York, the following cnstomers re-ceive a 10% discount plus a 2% cash terms discount: Walgreen Drugand F. W. Woolworth Co. The following customers receive a 10%allowance but did not receive a 2% cash terms discount: SaraceniDrng, Mario De Gregari, People s Drug, Pine Drug, and ThriftwayFive and Ten. The following customers receive a 2% cash terms dis-count but did not receive the special 10% allowance: Brittman, St.

Francis Gift Shop, Tony and Lil' s, Lo Tempio, Catatano Bros. , LaSalle Pharmacy Sarkus, Blue s Drug, Girard Pharmacy and Albert

Amico.PAR. 6. In the course and conduct of their business in commerce,

respondents are competitively engaged with other corporwtions , indi-viduals , partnerships and firms in the manufacture, distribution andsale of their products.

PAR. 7. The effect of respondents ' discriminations in price, as allegedmay be substantially to lessen , injure, destroy or prevent such com-petition as alleged or tend to create a monopoly in the lines of com-merce in which respondents and their purchasers are engaged.

PAR. 8. The foregoing acts and practices of the respondents as al-leged violate Section 2(a) of the amended Clayton Act (U. C. Title

, Sec. 13).

Mr. Thomas A. 8tC1"neT for the Comn1ission.White

&:

Case by ;Vh' . EdgaT E. Barton and M,' . Scott E. Bohon ofNew York, ?I. , for respondents.

318 FEDERAL 'l' RADE COMMISSION DECISIONS

Initial Decision

INITIAL DECISION BY LEON R. GROSS, HEARING EXAMIKER

SEPTE1:IBER 20, 1962

I:-DEX

PRELl MINAR Y STA TE11E:-T n_--____- -h --n n _n __huu -_uFINDINGS OF FACTS A:-D CONCLUSIO:-S-u uuunu__u_uu

1. The Product Involvcd------__ ____n_____---__nnn___II. The Case Against Shattuck and Schrafft Sales, Description of the

Respondents and their Business Relationships--__- - - -- -- -- - - -- --A. Frank G. Shattuck CompanY-__n--n--n_h__ _----_-_hB. Schrafft Sales CorporatioD-- _nnn--_----

__--_ _-----

C. Wallace & CO_--nu_u

_--_

nuuuu_ __u_n_u_D. W. F. Schrafft & Sons Corporatioll_----_-

-_-

_nnnn---III. The Case Against SchraffL-h_--- nn--_h_- -_h- _--n-

The "Indirect Purchaser" Theory - - - - -- -- - -- - - -- - -- - - - - - -

- - -- ---

A. Schrafft' s Participation in "Listing" its Products with ChainStores and Governmental Agencies unn---

--------

B. Activities of Schratft Wholesalers- -

- - - - - - - - - - - - - - - - - - - - --

1. The Wholesaler Attca in Buffalo_

---

-----nn-2. The Wholesaler Zutes in Rochester, N. h_n-3. The Wholesaler Costello in Syracuse___

C. Activities of the Schrafft Salesman in the Buffalo and Rochester Areas

- - - -- -- -- - -- - --- --- - ---- --- --- -- - --------

1. Theodore Zymanek_- n----n_ u---

---

2, E. P. Costello, Jr--u__ ----_n--------_nn-D. Corporate Chains ' Purchasing Practices ---n_---

1. United Vilhelan CompanY------

---

2. F. W. Woolworth CO_ _u_n----n--_u_n_

_---

3. W. T. Grant CompanY-_____n_--_--__-

---------

4. J. C. Penney-------

------

5. Walgreen Drug Stores_____

---- ----

6. S. S. Kresge CO----------_--_----n----____ n--_-Discussion of Previous "Indirect Purchaser Decisions

(paragraphs 64-80 inc.

) - - - - - - -- - - -

_nn --- --- -- -- -

- ---

IV. The Case Against Wallace_ n_--

------- ---- _--

If' Additional Findings of Fact (paragraphs 81-90 inc.

)__

1. Wallace s Defense of No Injury to Competition--___n-2. Wallace s Meeting Competition Defense--nn--_nn-

C01\CL USIONS - - uuu__u_uuu_- _uu_unun___uuu_u-o RDER- - - - - -

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --

PRELIMINARY STATEMENT

The complaint in this proceeding charges respondents Frank G.Shattuck Company, a Massachusetts corporation (hereinafter "Shat-tuck" ) and its wholly owned subsidiaries W. F. Schrafft & Sons Cor-poration, a Massachusetts corporation (hereinafter "Schrafft"

65 F,

Page

318321321

321321323325326328328

329331331332333

334334335336337337338339340340

341346346349351353354

FRAN G. SHATTuCK CO. ET. AL. 319


Schrafft' s Sales Corporation, a Delaware corporation (hereinaftrSchraff Sales ) and Wallace & Co. , a New Jersey corporation (here-

inafter "Wallace ) with violating 2 (a) of the amended Clayton Act(15 U. C. 13)' by "discriminating in price between different pur-chasers of their products of like grade and quality by selling to somepurchasers at higher and less favorable prices than they sell to otherpurchasers competitively engaged in the resale of their products withthe non-favored purchasers

In this record counsel supporting the complaint (hereinafter "com-plaint counsel" ) has limited his proof of competitive injury, if any isproved , to competition rut the retail level , to "secondary line" or " thirdline" competition.

Original cOll1plaint counsel, at the time complaint issued and untilhe was replaced by the present counsel on September 29 , 1961 , soughtto prove that the parent company, Shattuck, although not a seller ofthe product line involved in the alleged price discrimination, exercisedsuch degree of direction and control over the sales of its subsidiariesthe other corporate respondents , as to be liable for such 92 (a) viola-tions as 111ight be proven against any or all of snch corporate subsidiaryrespondents in their sales of the product line. The original complaintcounsel also stated his intention to prove that Schrafft Sales was andis engaged in interstate commerce, and can be held under 9 2 (a) ofthe Clayton Act for any price discrimnations proven against it. Inhis proposed findings iiled on August 17 , 1962 , present complaint coun-sel has admitted that the record ,viII not support fidings of faet andconclusions of law which would justify a cease-and-desist orderagainst Shattuck and SchrafIt Sales and in his oral argment on Au-gust 23, 1962, complaint counsel stated that this proceeding should

be dismissed as to Shattuck and Sc1mdft Sales for failure of proof.The hearing examiner had arrived at the same conclusion by hisindependent examination of the record and 811Ch dismissal order as

to Shattuck and Schrafft Sales will be entered. However, a propervaluation of the record for initial decision does involve some minimal

findings as to both these companies. These will be made later.

1 ". . . That it shall he unlawful for any person engaged 1n commerce, in the course ofsuch commerce, either directly or indirectly, to discriminate in price hetween dlflerentpurchasers of commodities of Eke grade and quality, where either or any of the purchn.,esinvolved in such discrimination Rre in commerce, where such commodities are sold for useconsumption; or resale within the United States or any Territory thereof or the District

of Columbia or any insular posse!'sion or other place under the jurisdiction of the T;nitedStates, and where the eflect of such discrimination may be substantially to lessen com-petition or tend to create a monopoly in any line of commerce, or to injure , destroy, orprevent competition with any person who either grants or knowing1y receives the benefit ofsuch discrimination , or with customers of either of them: Pro'!ided That nothing hereincontained shall prevent diferentials which make only due allowance for diflerences inthe cost of manufacture, sale, or delivery resulting from the dlflering methods quantities in which such commodities are to sllch purchasers !'old or delivered. . .

320 FEDERAL TRADE COMMSSION DECISIONS


In view of complaint counsel's admission that a case has not been

made out in this record as to Shattuck and Schrafft Sales, the presentposture of the case requires a determination only of:

(1) whether W. F. Sehrafft & Sons Corporation ("Schrafft") hasbeen proven to have violated 2(a) of the Clayton Act under an

"indirect purchaser" theory; and(2) (a) whether Wallace s additional discounts to certain retail

outlets and others constitute price discrimination under 2 (a) ;(b) if so, whether competitive injury resulting from such price

discriation stands proven in this record; and(c) if so, whether such discrimination may be justified under the

meeting competition" defense permitted under 2(b)' of the ClayhmAct, as amended.

Both Schrafft and Wallace sell the product line here involved.Hearings have been conducted in Washington, D. , and in Roch-

ester, Buffalo, Syracuse and New York, New York. During the courseof the hearings when the transcript consisted of 815 pages and therewere over 700 Commission exhibits, the original complaint counselresigned from the Commission to accept employment elsewhere. The

new complaint counsel was given a generous extension of time "ithinwhich to acquaint himself with the record, and particularly to decidewhether he would use stipulations which had previously been negoti-ated by his predecessor. The present complaint COW1Se! renegotiated

the stipulations, which are now 57 pages in length, contain the testi-mony of 44 witnesses , and were admitted on March 15 , 1962 , as CX-737. The renegotiation by counsel and acceptance of the stipulat.ionsby the examiner obviated additional hearings in Buffalo , RochesterSyracnse, and Niagara Falls , N ew York.

Proposed findings, conclusions , and briefs have been submitted andargued by the parties. Based upon the entire record , including theexhibits and' stipulations, the examiner makes the findings and con-clusions hereinaftr set forth. Any fiding proposed by the partieswhich is not hereinaftr made in the form proposed, or in substan-

tially that form, hereby is rejected. The fact that no finding sum-marizes the evidence in the exact manner which the panies haverequeste does not mean that such evidence has not been considered.It means merely that thc examiner deems the evidence as summarizedin his fidings to be suffciently relevant, probative, substantial and

J".

.. ..

on proD:! beIng made

.. ..

that there has been discrimination in price

..

the burden of rebutting the prima facie case

.. ..

shaH be upon the person charged witha violation of this section

.. ..

Provided, hQwever, that nothing herein contained shanprc'Vent a seller rebutting the prima facie case thus made by showing that his lowerprice

.. '"

to any purchaser"

.. '"

waB made in good faith to meet an equally low priceor n competitor.

FRAN G. . SHATTUCK CO. ET AL. 321

315 Initial. Decision

material to dispose of the issues presented. All motions which have notpreviously been ruled upon, and which are not herein specifically ruedupon , are hereby overred and denied.

Based upon the entire record, the hearing examiner makes thefollowi :

FINDINGS OF FACT AND CONCLUSIONS

I. The Product Involved

1. The product line involved in this proceeding is the type of candyor confectionery known as "packaged gift chocolates" or "boxedcandy" or "fancy packages factory-packaged boxes of candy,such as miniature chocolates which are usually sold at retail in one-pOlmd or two-pound boxes at prices ranging from about $1.35 to $2.a pound, with an average price of about $1.60 a pound (or sold atsomewhat higher prices per pound in the case of certain special pack-aging such as Valentine hearts with corsages, etc. ). With respect tothe respondent Wallace, the product line involvcd in this proceedingis the type of packaged candy or confectionery described on the Wal-lace price lists as: "Fancy Packages , intended to retail at prices

ranging from about $1.59 to $1.89 a pound

, "

Specialty Packages" in-tended to retail at prices ranging from about $0.29 to $1.50 per pack-age, and "Jelly Treat Paks" intended to retail at about $0.39 perpackage.II. The Oase Agaimt Shatt1tc1c and Schrafft Sales. Description of

the Respondents and their Business and Relationships

A. Frank G. Slwtt,tCk Oompany

2. Respondent Frank G. Shattuck Company, a Massachusettscorporation, has its principal offce at 50 "IV est 23rd Street, New YorkCiry. It also has an offce at 18 West Street, Boston , Massachusetts.Its shares of corporate stock are listed for trading on the New YorkStock Exchange. Its net sales, incJuding those of alJ wholJy ownedsubsidiaries, were $61 650 076 in 1959; $66 869 769 in 1960; and

$70 276 887 iu 1961. Shattuck operates approximateJy 50 restaurantswhich are located in more than one State of the Union , a cateringservice, business food services, eofl'ee services, and retail shops in K ew

York City, which sell at retaiJ the produot Jine here invoJved andother food and food line products. Shattuck sells some of its prod-ucts through supermarket "Quality Isles . It has franchised restau-

rants in States other than New York which are operated under theSchraff name. Shattuck selJs ice cream and ice cream toppingsfudges and fruit syrups at whoJesale. At its bakery and pJant in NewYork City, Shattuck prepares or manufactures bakery goods, some


G5 P.Initial Decision

types of hard candy, and kitchen-type confections. Sh"ttuck does

not manufacture the type of boxed candy constituting the productline here involved. It purchases such boxed candy for resale at re-tail from its wholly owned subsidiary, respndent SchrafI. Shattuckresells this boxed candy at retail through its restaurants and retailstores. Shattuck is engaged in commerce .as "commerce" is defied inthe CJayton Act, as amended.

3. During the time relevant to this proceeding Shattuck owned allof the issued and outstanding capital stock of the corporate respond-

ents Schrafft, Schrafft Sales and ' Wallace. As such sole stockholderShattuck normally would elect the directors of its wholly ownedsubsidiaries. The offcers and directors of the four corporate respond-ents for the years 1957 , 1958, and 1959 were:

Offcers and directors of Frank G. Shattuck Co. and wholly owned subsid'iaries1957-195.9) incl.

Frank G.Shattuck Co.

Scllrafft,sall5sScbrafft& SonE

Wallace & Co.

Gerald Shattuckn_n__ __oup o 1957 P, D1958P19,s9P,

. l(J57YP , D1958VP,19S9Vp,

Razen W. Jones--_ u_-

-.-

- 1957VP, C1 , D1958VP Cl,19S9VP,

Charles F. Oesterekh____ __----- 1957 VI', Sec.1958VP, Sec.19S9VP, Sec.

H. Morgan Sbattuck--u--u_ _-- 1957VP1955VP,19S9VP

Henry B. Kennedy----___- ----- 1957VP1958VP1959VP

Francis C. Raethle__ - 19;7VP1'J58VP1959VP

Wesley W. Lang_

-- --

- 1957 T1U58T1959T

- 1957 Asst,1958 Asst.1909 Asst. VP

LeRoy R. Stnrn

- -

- 1057 Asst. T1958Asst.1959Asst.

HeurJetta H. Gunstcn

---- --

- 1957 Asst. See.1958 Asst. See.1959 Asst. See.

- 1\J57Comp.1958Comp.195nComp.

- 1957D1958D1050D

John G. Shattuek

_--

-- dU HJ57DIsidoreJ. SiJverman

_____ ---

- - 1957n1958D1959D

Carroll D. I'.eal'Oll__ _un__

--_

- lU58VP19S9VP

uu 1958VP19S9VP

Frank :t1. Folsom--

_-- --

_u_ - 1US8 D19S9 D

Harold D. Sbattuck

ChrlstopherJ. Kelly__

Allen J. SebnetzeL-

AlanR. 1\orsen_

Robnd !lL HoweJ1--

1957D

1957 Sec.1958 See.19S9Sec.

1957 Sec. , D1958 Sec., D1959 Sec. , D

1957D1958D1959 D

1958D1959D

1958Asst.19.'j) Asst. T

19.'i8Asst.1959Asst

1%7D

1958D19S'JD,

FRANK G. SHATTUCK CO. ET. AL. 323


Offers and directors of Frank G. Shattuck ao. and wholly ownd 8ubsidiaries1957-1959 , ind. Continued

Frank G.Shattuek Co.

W. F. Schratr Wallace & Co. Schrafft Sales& Sons

19S7P 1957D 1957D1958 P 19,58D 1958D19S7VP, CI.1958VP, C1.,1959VP Cl.,1957D1958D19S9D1957VP,19S8VP,HI59 Exec. VP. D1957VP19S8VP1957 T1958 T1959 T1957D1958 VP,1957D1958 D,1959 D,1958 VP19S9VP19S8Dmi9D1959 VP1059 VP

1957 P , G , D1958 P,1959 P. Q)11957VP,1958 VP,1959VP,1957VP,1958VP,1959 VP,1957T1958 T1969 T

1957 P, GM1958 p, GM1969 P1957 T1958 T1959 T

1959 D 1959 D

Walter A. McNell..-- --------- 1957 D1958D

Wiliam O. Wallburg--.-.._n_--

Wiliam V. Wallburg_

Willam A. SHverman--

_-.--

Earle Erlckson_n----__

-----

Ernest H. Scburian

_------------

Edgar H. Savagen--

_-------

Samuel Siddn_

-------------

Thomas E. Kueeland__--_------

George F. ScbrafiL-

----_

Edward J. J\furrman_ a----Gerard R. J\fulrahann--nHerbert L. Bebal'

Edward *"". Terry--

_--

John P. Joyce_ n_--n------u

George B. Xewman

Lawrence WesL___

__-.-----.-

Louis G. Best

----_-----------

Tbomas L. Shattuckmoou__

NOTE: Abbreviations used:Presldent=PVice Presldent=VPTreaswcr=TSecretary=Sec.Comptroller=Comp.Director=Clerk=

B. Schmfft's Sales Oorporation

4. Schraff's Sales Corporation , a Delaware corporation, (herein-

after Sehrafft's Sales), with its principal offce at 133-34 36th RoadFlushing, New York, is not a manufacturer of the product line hereinvolved, but sells the product line at wholesale, exclusively withinthe State of K ew York. In addition it sells toys , fountain specialtiesand novelties. Schrafft Sales sells to approxima,tely 7 000 retail ae,counts located within the seven Kew York counties of WestchesterNassau , Suffolk, New York, Bronx , Kings and Queens. Schrafft Sales

324 FEDERAL TRADE COCoMISSION DECISIOXS


total volume of business is about $1 600 000 per year. It purchases andresells candy manufactured by Schrafft and 'Wallace, a.s well as othertypes of candy including Gardini chocolates , Phoenix candies, Minterbars, Callard & Bowser toffy and Greylock marslunallows. Approxi-mately 80% of its sales volume is represcnted by candy manufacturedby Schrafft.

5. Sehrafft Sales, organized in 1939 (under the name KantikoInc. ), is a wholly owned subsidiary of Shattuck and is successorto the wholesale jobbing business of the J. C. Schriner Co. , a generalconfectionery jobber in New York City which went out of businessin 1930. Its name was later changed from Kantiko Inc. to ShattuckSales Company, and then to Schrafft' s Sales Corporation.6. Thc President, Gencral Manager and operating head of

Schrafft' s Sales is Lawrence '\Vest , who has held that position forfive years, and who has been employed by the Corporation since itsincorporation in 1930. Prior to 1930 , Mr. West had been employcd bythe preceding jobber, the J. C. Schriner Co. (p. 25). Mr. West, asthe opcrating head of Schrafft's Sales, in fact runs SchrafIt's Salesacts a.s sa1es manager , and determines its sales policies, and the pricesand tcrms upon which it sells its merchandise. Mr. '\Vest is not anoffcer of Shattuck but he keeps thc president of Shattuck informedas to the overall financial situation of SchrafIt's Sales, and consults

with the Shattuck president about any capital requirements for re-fnrbishing or plant improvement. No individual in Shattuck acts asliaison between Shattuck and SchraiJt's Sales (1'. 757). There is noevidence that Shattuck , or any of its offcers or employees , either con-trol or attempt to control the business operations or the sales policiesor prices of SchrafI' s Sales Corporation.

7. SchrafI Sales sells to all of the chain retail stores in its areawhich purchase Schl'afft candy, including approximately eight or nineWalgreen drug stores, fifty 'Whelan drug stores, three Rexall drugstores , fifteen Grant variety stores , 150 '\Vool,yorth variety storcs andfour liewberry variety stores , at prices equivalent to 40% ofI the sug-gcsted relail price, plus 2% cash discount for prompt payment. Thecompany has found it necessary to grant the 40% and 2% discountsto t,lw.se retail outlets in order to meet the competition ,,,hieh it faceshl se11ing candy and other products. The facts regarding the necessityfor SchrafIt Sales, SchrafIt's and Wallace mecting thc competitiveprices in order to obtain and keep their cD,ndy business 'were testifiedto by the chain store candy buyers , called as TIitnesses by complaintcounsel.

8. Some retail customers purchase SchrafIt candy from SchrafIt'sSales at a discount of 33113 % from the suggested retail price, and a2% cash discount for prompt payment.

F'R-L

'"

SHAT'.rUCK co. ET AL. 325


Schrafft Sales ' total sales to drng chains were as follows:1957 1958

Unlted VVhelan Drug C.orp_____----

--------

------------- $23, 295 $22, 672VValeen JDrug Co_-------------------------------------- 13, 568 15, 560Rexall Drug CO.__n__----n_--__n_____n___n______----- 5, 515 5, 579Jaynet Drug 00-------------------

------------------ ---

-- 3 184 5, 724Crown Drug Co_------------------------------------

---

-- 1, 608 2. 356

9. Schrafft's Sales employs about 57 persons, including nineteensalesmen. Two of th sc salesmen cover all of the chain store accounts

to which Schrafft's Sales sells. The two salesmen who cover the chainstore accounts are paid on a salary basis, while the other seventsensalesmen are paid on a commission of 7% of their sa.les. In mostinstances, Schafft's Sales delivers directly to the individual retailstore of a chain. However , deliveries to the Crown Drug Companyare made to that company's cBntral warehouse in Brooklyn , N ew York.

10. On page 28 of his proposed findings, complaint counsel admitsand the hearing examiner hcreby finds and concludes , that the recorddoes not support a fillding that Schrafft Sales is engaged in commerceas "commerce" is defined in the amended Clayton Act.

o. Wallace

&,

00.

11. Wal1ace, founded in 1870 , is engaged in manufacturing, at itsplant in Brooklyn, Xew York, and selling certain types of candy andconfectionery products, including boxed candy, dircctly to retail out-lets such as candy stores and department stores throngh its own sta ffof nine salesmen. "lVallace sel1s to about 4 000 retail accounts through-out the United States. During the period from 1957 through 1959Wallace also sold a small volumc of boxed candy to about 20 to 25jobbers , including Schraff Sales. In 1960 Wal1ace sold to about35 jobbers, including Schrafft Sales.

12. Herbert L. Bebar , president of Wallace for approximately 5'1years, was vice president and general manager for the preceding fouryears. The business operations of IVallace are conducted by Mr. Bebarand the two vice presidents, Edward Terry in charge of productionand John Joyce in charge of sales. None of these mcn are offcers ofShattuck. Mr. Bebar keeps the president of Shattuck informed as tothe overall financial condition of Wallace, and consults with the presi-dent of Shattuck concerning any capital requirements for refurbish-ing and plant improvement. No individual in Shattuck acts as liaisonbetween Shattuck and 'V all ace.

13. There is no evidence that Shattuck , or any of its offcers or em-ployees , either control or attempt to control the business operationsthe sales policie. , or the pricilg practices of Wallace.


Initial Decision 63

14. .Wallace sells boxed candy to certain of its retail customersprincipally department stores, at a 10% discount from its regular priceto retailer (or the equivalent of n. discount of 40% off the suggestedretail price) because it has found it necesary to grant the additional10% discount to meet the prices offered by its competitiors (pp. 193-198 881-900). Wallace sells hoxed candy to its other retail customersat a 331/% discount off tho suggested retail price. Wallace doe notgrant the additional 10% discouut with respect to purchases of bulkcandy.

15. In the regular coursc of business Wallace distribute to itsretailer purchasers price lists for its products which include suggestedresale prices to retail customers for its line of packaged candies

allace also attaches to its packaged candy printed tickets with sug-gested retail prices. During certain holiday seasons such retail pricetickets may he omitted.

D. W. F. Schrafft

&,

Sons Corporation ("Schrafft"

1G. Schrafft manufactures, at its plant in Charlestown, Mass. , andsells certain types of candy and confectionery products, includinghoxed candy, the product here involved. Other than the sales to Shat-tuck , all of the boxed candy sold by Schrafft is sold by a staff of from40 to 50 territorial managers or salesmen , to approximately GOO whole-salers located throughout most of the United States. Almost all ofthese wholesalers are engaged in the whoJesaling of tobacco productscigarettes, cigars, and fountain syrups and appliances to retail out-Jets such as drug stores, tobacco shops, department stores, and similarretail purveyors. Four wholesalers who purchase and resell Schrafft'boxed candy testiied in this case: Milhem Attea & Bros. (hereafter"Attea ) in Buffalo, New York; Zutes , Inc. (hereafter "Zute" ), in

Rochester, New York; Costello Bros. (hereafter "Costello ) in Syra-cuse, New York; and Schrafft Sales in New York City.

17. In accordance with a Jong-standing policy of loyalty to itswholesalers, Schrafft has traditionally refused and stiU refuses to a1-low any retaiJers of its candy to by-pass the local whoJesalers by buy-ing boxed candy direct from the factory. Schrafft refers all inquiriesor orders from retailers to the appropriate local wholesaler.

IS. Schrafft distributes to its wholesalers printeel price lists showingprices to the wholesaJers , a recommended wholesale price from whole-salers to retailers, and a suggested retail price for sales of its boxedcandy by retailers to consumers. In many, if not most, instances theretail price is preticketed on the package. The prices suggested for



sales by "Wholesalers to retailers represent a 33Va % discount off thesuggested retail price. SchraiIt does not "fair trade" its products atany level of distribution.

10. Schrafft does not control the prices charged by its wholesalers

to their retailer cnstomers for Schrafft candy. The prices are quotedby the wholesaler, usuaUy, as a percentage discount from the sug-

gested retail price ,,- hich Schrafft does puhlish.20. I. J. Silverman, president of Schraff sincc 1058 , is the principal

offcer of the corporation. 1-Ie carries on the business operations ofSchrafft with the other Schrafft offcers , none of whom are offcers ofShattuck. Mr. Silverman keeps the president and the hoard of direc-tors of Shattuck infoI1ned as to the oyeraU financial condition ofScin-afft (p. 23) and consults with the president and/or the board ofdirectors of Shattuck concerning any extraordinary requirenlcnts foreapital funds in excess of the amounts generated by ordinary deprecia-tion allO\vances. No individual in Shattuck acts as liaison between

Shattuck and SchraiT. Neither Shattuck nor any of its offcers oremployees either control or attempt t.o control the business operationsor the sales policies or prices of Schrafft.

21. There is no eyjdence in this record of such control by Shattuckoyer its suhsidiaries, Schram, SchrafI Sales and vVallace , as to indi-cate that the subsidiaries were mere tools of Shattuck. This recorddoes not support a finding that the corporate identities of the Shattucksubsidiaries is a 11181'e fiction, so as to hold Shattuck for any violationof suhsection 2 (a) of the Clayton Act, as amended, that may

be proven against its subsidiaries. Sce NaNonal Lead Oompany

Federal Trade Oommission 227 F. 2d 825 , 828-829 (7thCir 1055)rBversed in part as to other issues in 352 U. S. 410 (1957) ; II. J. Heinz00. , et al. 52 F. C. 1607 (1956); Stokely- Van Oamp, et al. v. FTO246 F. 2d 458 (7th Cir. 1957); Druggists S"pply Oorporation, 52

C. 699 , at 704,705 (1956); WaT)'en Pet' ole"m Oorporation, 53C. 268, 271-272 , 282 (1956), and Gummed Ind"stries Assn., 55C. 1409 , 1411-1412 (1959).

22. In his proposed findings and conclusions complaint counsel

admits and the hearing Bxaminer hereby fids and concludes that therBcord "does not support a finding that respondent Frank G. ShattuckCompany determines, directs , or controls the prices, terms and otherpolicies upon which respondents VV. F. Schraff & Sons and Wallace& Co. deal with their customers" (see proposed conclusion No. :iO onpage 28 or complaint counsel). The examiner finds and concludes thattho. complaint should be dismissed as to Shattuck.

328 FEDERAL TRADE COMMISSION DECISIO:\S


III. The Case Agaiwt Schrafft

23. Complaint counsel seeks a cease-and-desist order against Schraffton the "indirect purchaser" theory, even though the original complaintcounsel did not draft his complaint on that theory. Paragraph Fiveof the complaint alleges:

In the course and conduct of their husiness in commerce, respondents are dis-criminating in price between different purchasers of their products of like gradeand quality by sellng to some purchasers at higher and less favorable pricesthan they sell to other purchasers competitively engaged in the resale of theirproducts with the nanfa \'ol'ed purchasers.

24. This allegation in the complaint is not substantiated as to re-sponde-nt Schrafft by reliable, probative and substantial evidence inthis record. Schraff sells its candy products only to wholesalers who inturn resell to retailers. Cornplaint counsel has not proven nor attemptedto prove any price discrimination by Schrafft in fttvor of any of itswholesalers. Complaint counsel does not contend for price discrinlina-tion at the wholesale level but only at the retail level.

25. In order to prove price discrimination by Schrafl't at the retaillevel , complaint counsel Books to have the hearing examiner find thatthe retail sellers of Schraff candy who purchase Schraii candy fromits wholesalers are indirect purchasers from Schrafft even though nonebuy their candy directly from SchraiYt.

26. The "indirect purchaser" theory postulates:If a manufacturer (Schraff), even though not ostensibly, does in

fact direct and control the sales and pricing practices of its whole-

salers (Attea , Zutes and Costeno), then the retail purchasers ("Wool-worth , 'VaJgreen Drng, LoTempio Pharmacy, Stewart Drug, SaraCBniDrug, LaSalle Pharmacy, Neisner Bros. , McCrory , Sarkus , GirardPharmacy, united .Whelan Drug, etc., etc. ) from such wholesalersare indirect purchasers of Schrafft for the purpose of determinigwhether there has been a price discrimination in violation of 2(a)of the Clayton Act. A retailer is nonetheless a purchaser because hebuys indirectly, if the manufacturer deals with him directly in promo-ting the sale of his products and exercises control over the terms uponwhich he buys.

JJ(l'ft Pheniz Cheese Corp. 25 F. C. 537 (1937); Ohampion Spark P/.11,g 00 50 F.30 (1953) ; General Motors Corp., 50 F. C. 54 (1953) ; Elect7-ic Auto-Ute Co. 50 F. C. 7B(1053); Wh.j.taker Cable Corp. 51 F. C. 958 (1955); Iltr'd 239 F. 2d 253 (7th Cir. 19(6),oert. den. 3G3 S. 938 (1957) ; E. EdeZm.ann 00., 51 F. C. 978 (1955), aff'd 239 F. 2d152 (Tth Cir. 1V56), cert. den. 355 U. S. 941 (11158) : Thompson Products, Inc., 55 F.1252 (1959); Dentists ' Supply Co. oj N. 37 F. C. 345 (1943); Generu-l Foods Corp.52 F. C. 798 (195G); Mus su,chusetts Brewers Ass v. P. BaHa'ltine 80118 Co., 119F. Supp. 736 (D. Mass. 1955) ; KZein v. Lionel Corp. 237 F. 2d 13 (3rd Clr. 1(56) ;American News v. F'l' C, 300 F. 2d 104 (C.A. 2 ) (1962); Lwcor Ltd. 31 F. C. 658 (1940) ;Liggett Myers Tobacco COll panll, Inc., 56 F, C. 221 (19159).

FRANK G. SHA'rTDCK CO. ET AL. 329

815 Initial Dccision

27. Complaint coUllsel seeks to establish Schraftt retailers as indirectpurchasers because of (1) Schraftt' s active participation in gettingits products listed with the corporate dlains, (2) the active participa-tion of Schrafft salesmen in promoting the retail sales of Schrafft'candies, (3) the "domination" of the wholesaler s sales policies bySchrafft, and (4) Schraff's rendition of other services to the retaileras well as the wholesaler in the marketing of its products.

A. Schratt'ts Participation in "listing " its Products with Ohain Storesand Goverrwnental Agencies

28. A number of chain retailers such as F. ,V. ,V oolworth & Co.W. T. Grant Co. , S. S. Kresge Co. and J. C. Peney Co. , and a numberof governmental agencies and instrumentalities such as the VeteransAdministration , the Army & Air Force Exchange Service and the NavyExchange Service do not permit their local outlets or buyers to stockor sell any merchandise or brands which have not first been "listed"with and approved for handling by the head offce or chief buyer ofthe retailer or governmental agency. In order to secure a "listing" of

its products with the retailers and agencies havig such a requirementa manufacturer must satisfy the chief buyer that the brand or productis adequate with respect to quality and salability, and must file withthe chief buyer a detailed descriptive list of the various items com-prising the manufacturer s line showing specifcations , sizes , packag-ing, cost and suggested selling price. Samples are also submitted. If thechief buyer finds the product acceptable, the retailer or governmentalagency then publishes and distributes to its various outlets , managersor local buyers a "listing" of the various items in the manufacturerline which they are authorized to purchase and stock. Such a listingdoes not, however, require a local store manager to stock and sell theitems listed , but merely authorizes him to do so. Schrafft seeks a listingby chain retailers and governmental agencies, in order to make thisbusiness available to the Schraff candy wholesalers. Schrafft has notsought "listings" by Liggett Drug Co. , United Whelan Drug Corp.Gray Drug Stores, Walgreen Drug Stores , Cunningham Drug StoresMarshall Drugs, Read Drug & Chemical Co., Gallagher DrugsThrifty Drug Stores , Owl Drug Co. , Dngan Drug Stores, StandardDrug Co. or Broward Drug & Surgical Supply Co. , even though someof these retailers do in fact buy Schrafft's candy from Schrafftwholesalers.

29. These Schrafft wholesalers are not required by Schrafft to sellto the retailers or agencies with whom Schrafft's candy has been "list-ed" . Several of the wholesalers choose not to sell to these retail outlets

313-121--70--


Ini Oal Decision G5 F.

in their area, with the result that Schrafft's candy is not carried insuch stores.

30. Typical "listings" of SchrafI's candy with variety chain retailersare Commission s Exhibits 683 and 684 , issued by the F. W. Wool-worth Co. (p. 622, 633). These exhibits describe jhe approved iteilin the Schrafft line, and list the names and addresses of Scbrafft whole-salers throughout the United States by geographic areas in whichthe particular IV ooJworth stores are located. The prices set forth in thelisting are equivalent to a 40% disc01mt from the suggested retailprice of Schrafft candy, plus a 2% cash disconnt for prompt payment.

31. Most of the outlets of the variety chain stores which have "listed"Schraij't cancJy, actually buy Schrafft candy predominantly in "bulk"rather than the type of "boxed candy" which is involved in this pro-ceeding. For example, in 1958 the three IV oolworth stores in Syra-cuse purchased Schrafft candy in the total amount of $7 385from the wholesaler Costello , but only approximately 11% of thisamOlmt\'ms "boxed candy . The three Grant stores in Syracuse pur-chased a total of $2 269 of Schrafft candy from Costello, but onlyahout 7% of this amount was "boxed candy . The two Kresge storesin Syracuse purchased a total of $436 of Schrafft candy from Costellobut only ahout 4% of this amount was "boxed candy . The McCrorystore in Syracuse purchased a total of 839 of Sehrafft candy from Cos-tello, hut only about 8% of this am01mt was "boxed candy" (CX682B). A listing of Schrafft candy with the central buying offce ofthe drug and variety store and department store chain, IV 001 worthetc. , etc. , constitutes nothing more than offcial permission from the cen-tral huying offce for the local store managers to huy the items listedon the terms stated in the listing. In practically every instance ofnational retail chains, the local store manager cannot purchase anitem unless it is listecJ. Although the prices stated on a listing mayresult in SOIne instances from negotiations between the central buyingoffce and a representative of the Schrafft company, the local Schraffjobber or wholesaler mayor may not adhere to the terms set forth onthe listing. If the local Schrafft wholesaler repudiates the terms statedin the listing, the wholesaJer may, or may not get the husiness. In anyevent, the local Schraff wholesaler is the person who uJtimatelydetermines the price at which he sells.

32. The practice of listing is a fact of life in modern corporate1nultiple unit operations , and nothing sinister or derogatory can orshould be imputed to the listing practice. Listing does not connoteprice-fixing, price-cutting, nor discriminatory pricing practices.Schraffs ' listing of its boxed candy with the central buying ollces ofcorporfute multiple lmit chains does not make the individual units of

FHANK G. SHATT"GCK CO. ET AL. 331

.315 Initial Decision

such chains, nor the chains themselves, the indirect customers of

Schrafft. Without such listings Schraffts ' real customers , its individualwholesalers, would not be able to sell to the individual units in the,chain.

33. Complaint counsel suggested in his oral argument that Schraffta void the rationale of the "indirect purchaser" theory, attaching to itslistjng" practices, by abandoning its present marketing procedures

nsed since before the amendment of the Clayton Act-liminating thewholesalers-and selling directly to the retailers. Enforcement of theRobinson Patman Act should not requie abandonment of long-estab-lished marketing procedures unless a clear and undisputed case ofillegality has been proven. Such is not proven in this record. And whatof the 600 Schrafft wholesalers who make a profit from handlg itscandy? Shall these small businessmen be cut off from this source ofrevenue because of some misapplied theory of "indirect purchaser

B. Actimities of Schrafft Wholesalers

1. The Wholesaler Attea in Buffalo

;14. Milhen Attea & Bros. (hereafter referred to as Attea) is a gen-eral-line wholesaler of tobacco products , c,mdy, appliances and otheritems in the Buffalo, New York area. Attea sells approximately 2 000different items. Approximately 70-75% of Attea s total annual volumeof husiness of 12 to $6 milion is in cigarettes; approximately 10%is in cigars; and approximately 10%-15% is in candy, including candymanufactured by Schrafft. Attea s total purchases of Schrafft candyduring the year 1958 amounted to $117 088 , or approximately 2% ofAttea s total business. Attea s total purchases of Schrafft candy

amounted to $122 313.72 in 1957. Attea does not buy Wallace candy.Attea employs between 32 and 36 persons, including eight salesmen,and sells to approximately 1 500- 000 retail accounts within a forty-mile radius of Buffalo. It is estimated that somewhere between 200 to400 of these retail accounts purchase some Schrafft candy. Attea sales-men are authorized to quote prices up to 40% off the suggested retailprice of Schrafft candy in order to meet competition. Approximately60% of the retail customers who purchase Schrafft candy from Atteaare allowed 40% off the suggestcd retail price, and the remainder areallowed a 33% % discount. The 40% discount is gTanted hy Attea toits retail customers without regard to whether they are part of a na-tional or local chain , or are independent retailers. In addition to the40% discount, Attea acquiesces in some customers, principally thechain stores , taking an additional 2% cash discount for prompt pay-ment (pp. 365-368). All of the Kiagara Falls Sew York , retailers who

332 1"EDERAL TRADE COMMISSIOK DECISIONS


are specifcally referred to in Paragraph Five of the complaint makeall of their purchases of SchrafIt candy from Attea; none of theseretailers purchase Schrafft candy directly from Schrafft. Similarly, allof the other BuITalo, K ew York area retailers whose testimony has beenstipulated in CX 737 purchase Schraff candy directly from Atteaand not from Schrafft. Attea himself prices Schrafft candy to his cus-tomers without any indirect or direct influence or control by Schrafft.

35. Attea testified (p. 360), inte'/ alia:A. They could charge $8.00 less 33%, less 40%, less 45%. It' s up to my men how

much discount he wants to give that retailer. And again (p. 370) :My man is on the road. They are privileged to meet competition and use their

own judgment-:unless it is a real 'serious problem. Then they discuss it with me.But I give the salesmen a privilege to use their own judgment ,,,ben they see fit tomake the prices as they see fit.

Q. Now can they give this 40% off retail price on the demand of a retailer?A. Yes, If they have good orders from them , yes.

12. The Wholesale'/ Z!ttes In Rochester, N.

36. Zutes Inc. (hereafter Zutes) is a general line wholesaler of to-bacco products , candy, health and beauty aids , novelties, toys, appli-ances and other itemB, in the Rochester, K ew York area. The widevariety of items sold by Zutes is ilustrated by this wholesaler s exten-sive catalog. Approximately 35% of Zutes ' total annual business of

800 000 is in cigarettes, approximately 20%-25% is in cigars , andapproximately 20% is in confectionery products , including Schrafftcandy and candy manufactured by approximately 150 other candyfirms. Zutes ' purchased $111 920 of Schrafft candy during 1958 , ap-proximately 4% of Zutes ' total volume. A substantial portion of Zutescandy business is bulk candy which is not involved in tIlls proceeding.During the year 1957, Zutes' total purchascs of Schrafft candyamounted to $97 631. Zutcs does not buy Wallace candy.

37. Zutes employs about 28 persons, including nine salesmen, andsells to approximately 1 500 retail accounts in the seven counties aroundRochester, New York. It is admitted that about 800 of these retailaccounte purchase some Schrafft candy, and that about 250-300 of

these retail accolmte buy some Schrafft boxed candy. Zutes sells Schrafftcandy to the Woolworth, Penney, Grant, Kresge, Newberry and N eisnerstores and the Sibley-Lindsay & Curr departmcnt store in his areaat prices equivalent to 40% off the suggested retail price, and an addi-tional2% cash discount for prompt payment. Zutes has found it ncces-sary to grant the 40% and 2% discounts to these retail outlets in orderto meet the competition of candy manufacturers (such as Doran Con-fectioncry Co. ) who sells directly to the retail outlets. ApproximateJy

. FRANK G. SHATTVCK CO. ET AL. 333

31;: Initial Decision

1070 of the retail outlets which purchase Schraff candy from ZutesInc. receive a 4070 discount from the suggested retail price, and theremainder of the retail customers receive a 33 1s70 discount, and anadditional 270 trade discount if they purchase Schrafft candy in un-broken cartons. The expected testimony of J. T. Grnden, E. J. Cornell,W. C. Burke and S. S. Shapiro of Rochester, New York, stipulatedin this record, indicates that upon occasion they purchase Schrafftcandy from Zutes in less than carton lots and consequently do not takeadvantage of the 270 trade discount. None of these Rochester, NewYork retailers purchase candy directly from Schrafft. They all pur-chase from Zutes.

28. Zutes prices Schrafft candy to his customers without any director jndirect influence or control by Schrafft. Charles Zutes, Schmfft'Rochester wholesaler, testified (p. 457) :

Q. :Now, so far 'as your pricing is concerned, on all of the products which youhandle, is it not a fact that yon yourself nnd your brothers determine the pricewbkh you are going to charge?

A. Ob yes.Q. And that includes your Schrafft products that you handle?A. It includes everything. If you wil remember , I said, when Mr. Snyde-rasked

me what my duties were

, "

l\ly duties are- to establish prices , and policies includeprice!:. I have- to determine the factors as to establishing our prices.

3. The Wholesale,' Oostello in Syracuse

38. Costello Bros. (hereinafter "Costello ) is a wholesaler of cigars,confectionery products and fountain syrnps in the Syracuse, New Yorkarea. It sells hundreds of different items, including- from 70 to 100diflerents brands of candy. Approximately 6070-75% of Costello$500 000-$550 000 annual business is in cigars, and the remainder is infountain syrups and confectionery prodncts, including the candy man-ufactured by Schrafft. Isadore Hose , a 5070 owner of Costello , testifed(Pl'. 317- , 581) that Costello purchased $87 524 of Schraff candyduring 1958. This represented approximately 1670 of Costello s totalbusiness. During- the year 1957, Costello purchased $81 559 of Schrafft

candy. Costello purchases a small amount of vVallaDe candy, but has

only h o customers for this candy.40. Costello employs six persons , including four salesmen, and sells

to a.pproximately 800 retail accounts within a radius of 25 miles aroundSyracuse , New York. It is estimated that about 250 or 300 of theseretail acconnts purchase some Schrafft hoxed candy. Costello sellsSchraff candy to Daw Drug, Day Bros. , W. T. Grant, S. S. Kresge,Liggett & Co. , Lincoln Stores , Murphy 5 and 10 , McCrory , UnitedWhelan , IVaI green and Woolworth stores, at a 40% discount from the

334 FEDERAL TRADE CO:\:LMISSION DECISIONS

Initial Decision 0:) F.

suggested retail price, and a 2% cash discount for prompt payment.The same 40 % and 2% discounts are given to the Syracuse departmentstore E. vr. Edwards & Sons. The Neisner Bros. stores in Syracusepurchase Coca-Cola syrnp from Costello , but do not purchase candyfrom Costello (p. 540). Costello grants these 40% and 2% discountsto meet the competition which it faces in sellng candy and otherproducts. Other purchasers of Schrafft candy from Costello receive a33%% discount and a 2% cash discount for prompt payment. Cos-tello s prices are approximately 10% higher to its customers who pur-chase candy in quantities of less than a full carton. For exampJe , Cos-tello charges $8.00 for a carton of six one-pound boxes of Schr:1fftGold Chest candy, or the equivalent of about $1.33 per box , but charges$1.50 per box for :1ny purchases of this candy in quantities of less thana fu1l carton of six. The suggested retail price for e:1ch one. pound GoldChest box of candy is $2.00.

41. The expected testimony of Joseph G. Krassenbaum , Ephraim :\1.Bodow , Bernard J. Carey, Pat Vitacolonna, Richard T. Byrnes , Abra-ham Meyerson , Alexander Edelman, Earl Rothschild, and Henry A.Pan asci has been stipulated (CX 737, pp. 20-31). AU ofthese are SJTa-cuse ow York area retailers who se1l Schrafft candy. Schr:1fft doesnot have any direct or indirect influence or contro1 over the pricesthese retailers P:1Y to Costello for Schrafft candy. All of these retailerspurchase Schrafft candy directly from Costello. At least one (Kras-senbaum) buys less than a cartn at a time, and consequently pays

Costello the Jess- than-carton price. Schrafft neither directs , controJsnor influences the prices which these or any other retailers pay Cos-tello for Schraff candy.

42. Isadore Rose , one of the owners of Costello, testified (p. 575) :

Q. ::Ir. Rose, you charge your customers what you ,vant to for the productsyou sell them , do you not?

A, Ob. sure , I make exceptions every day in the week.Q. And that is true with regard to aU the products that you sell?A. Sure. A customer tells me "I can buy Coca-Cola for such.and-such a price,

or Blackman Syrups . I'll either meet it or I'll lose the business. ConsequentlyI'll meet it.

Q. And consequently that is tme with regard to Schraff products?

A. Absolutely.

O. Actidties of the Schmfft Salesman in the B'lffalo and RochesterAreas

1. Theodore Zymanek

43. Theodore Zymanek has been for about five years Schrafft' s solesa1es representative and "Territorial i\fanager" in Western New York

FRA.'lK G. SHATTUCK CO. ET AL. 335


State including Rochester, Buffalo , Niagara Falls, and a small portionof Pennsylvania, including Bradford and St. Mary s. His job is to sellSchraff candy to the thirtn wholesalers in his territory. Mr. Zy-manek does not sell 1Vallace candy. He makes his headquartrs Buffalo, New York, and endeavors to spend Friday of each week call-ing upon the Buffalo wholesaler, Attea. He endeavors to call upon theRochester wholesaler, Zutes, for one or two days every second week.He makes it a point to see the other eleven wholesalers in his territoryat least once every four weeks, and plans to call on a jobber every dayof the week.

44. Mr. Zymanek travels approximately 30 000 miles per year on

business. When he calls upon a wholesaler he tries to make adjustment"for unsala,he goods; attends meetings of the wholesalers ' salesmen todiscuss nc'" items and advertising drives; takes inventory of the whole-saler s stock of Schrafft candy: confers with the wh01esaler or thewholesaler s buyer concerning new orders for Schrafft candy; andwrites np such orders. In such time as remains aftr calling upon

wholesalers Mr. Zymanek observes retail markct conditions for Schrafftcandy by calling upon retailers. Sometimes he calls on retailers aloneand at other times he is in the company of one of the wholesalerssalesmen. Mr. Zymanek may call upon retailers who do not handleSchrafft candy (i. Lee Drugs) to observe the retailer s stock and dis-plays of packaged candy. Occasionally, )lr. Zymanek may spend anentire day accompanying one of the wholesaler s salesmen in calls onthe wholesaler s retail customers. ","henever Mr. Zymanek accompaniesa wholesa.ler s salesman , the latter sells and takes orders on the entiregeneral line of items which the wholesaler carries , which may includeSchrafft candy, other brands of candy, tobacco products, etc. If Mr.Zymanek makes cal1s upon retailers alone hc later turns over to thewholesaler, or to the wholesaler s salesman who services that particu-lar retail account, any order for Schrafft candy which he may haveobtained.

93. E. P. Oostello, h.45. E. P. Costel1o, Jr. (who has no connection with the Costello Bros.

who are the Scbrafft wholesaler in Syracuse), has been the sale SchraffSyracuse area salesman and "Territorial :Manager" for about five yearsserving the area from Malone, New York, near the Canadian borderto the southern part of New York State, inclnding Elmiraand Bing-hamton , New York. Mr. Costello s job is to sell Schrafft candy to thesixteen wholesalers who are located within his territory. )fr. Costelloresides and makcs his headquarters in Syracuse, New York. Mr. Cos-tel10 travels about the same mileage on business per year (30 000) as

336 FEDERAL TRADE CQJ'I,l\,IISSION DECISIONS


does Mr. Zymanek. He performs his duties for Schrafft in the Syracusearea in substantially the same manner that Mr. Zymanek performs hisduties in the Buffalo area. Messrs. Zymanek and Costello Jr. wererequired to, and did send in to the SchraiJ main offce very detailedreports of all of their activities, including a listing of the wholesalersand retailers upon whom they called , and any orders which may havebeen given to them for retransmittal to the wholesaler. The prepara-tion and making of such reports by salesmen is usual and customaryin all well-run sales organizations. Such facts do not add any mate-rially significant evidence to support complaint counsel' s charge thatSchrafft retailers were indirect purchasers from Schraif, even thoughtheir prices to the retailer are fixed by the wholesaler. Although theevidence demonstrates and the examiner finds that Messrs. Zymanekand Costello employ all the usual and accepted techniques of promot-ing vigorously the sale of Schraif candy, the examiner also finds thatneither Zymanek nor Oostello control or influence , either directly orindirectly, the prices at which the Schrafft wholesalers resell Schrafftboxed candy to the retailers. Evidence in this record shows , and theexaminer finds, that representatives of other products which SchraiJ'wholesalers sell Tunction as salesmen for their products, in substan-

tially the same way that Schrafft salesmen do-attending the whole-saler sales meetings-inventorying stock-writing up orders-makingappointments-calling on the retail trade alone or with the whole-saler s salesmen-attempting to generate consumer interest in theirproducts-surveying the market, etc. (see Zutes testimony p. 453), seg. This is what any alert and aggressive salesman for any product

sold through wholesalers would do and he expected to do. everthelessas far as the pricing of Schrafft's boxed candy is concerned , each ofthe. wholesalers-Attea, Zutes and Rose , and Schrafft's offcers-testi-fied , and the examiner finds , that the wholesaler is the final and soleauthority in establishing: pricing policies gild carrying out pricingpractices. either Mr. Zymanek nor ::fr. Costello influences the pricingdirectly or indirectly.

D. Corporate Ohains ' P.urcha.sing Practices

46. Complaint counsel has introduced the testimony of Samuel

Garrelick, the chief candy buyer for united Whelan Drug Stores (p.594), Wiliam C. Strom , candy buyer for F. W. Woolworth (p. 621),Tudor Bradley, merchandise controller for "\'1. T. Gmnt Company

(p.

651), Alva EJliott, candy buyer for W. T. Grant Company (p. 662),nd Edwin Fox, candy buyer for J. C. Penney. "'hat these buyers

testified is summarized below and constitutes a finding of fact.



41. The expected testimony of Joseph E. Wisniewski, the chief

candy buyer for the Walgreen Drug Chain , is stipulated in CX 131,page 41.

48. The testimony of these candy buyers fails to prove or to supplya link in the chain of proof, that the retailer of Schrafft boxed candyis an indirect purchaser from Schrafft.

1. United Whelan Oompany

49. The United Whelan Company operates a chain of approxi-mately 120 retail drug stores, and provides wholesale services forapproximately 500 or 600 Whelan "agcncy" retail drug stores. The120 United Whelan stores sell approximately $150 000-$160 000 worthof boxed candy per year. About $25 000 or 16% is Schrafft boxed candy,and the balance of the boxed candy sold is Whitman , anet Page &Shaw (p. 619). United Whelan retail drug stores do not sell bulkcandy. On the purchase of all boxed candy they receive a discount ofat least 33%% and 10% (or the equivalent of 40%) from the sug-gested retail price. Whelan store managers purchase Schrafft candyfrom the Schrafft wholesaler in their particular geographic location

except that the sixty .Whelan stores in metropolitan New York pur-chase Schrafft candy from Schra1f' s Sales. Schraff Sales is paiddirectly for the candy purchased from it, and the local Schrafft jobberis likewise paid directly for candy purchased from him. The incE-vidual store handles its compJaints about Schraff' s candy directly withthe local wholesaler or jobber from whom it purchases.

2. F. W. Woo/;orth 00.

50. The F. .W. Woolworth Company (hereinafter ",Voolworth"operates a chain of approximately 2 000 retail variety stores in theUnited States which sell dry goods, hosiery, hardware, novelties , toysstationery, notions and candy, including both boxed candy and bulkcandy. About 200 of these stores are within metropolitan N ew York.Woolworth' s total annual saJes volumc of candy is approximately $51milion. Woolworth purchases candy from approximately 400 dif-ferent candy manufacturers , and " listings" are issued by the Execu-tive Offce of Woolworth with respect to cach of tbcse manufacturers.All Woolworth candy is purchased directly from the manufacturerexcept Schrafft candy, which is purchased from wholesalers. The,Voolworth witness could not determine with any degree of accuracythe amount of Schrafft candy sold by the Woolworth stores , since eachindividual store manager purchases it from the 600 separate Schrafftwholesalers. For the same reason , there appeared to be no way todetermine accurately the number of Woolworth stores which actually

338 FEDERAL TRADE COMMISSION DECISIO


do purchase Schrafft candy. It was cstimated that a majority of IVool-

worth stores handle it. A comparison of the volume of Schrafft candysold by Woolworth (CX 21 , in camera), with Woolworth' s $51 miliontotal candy sales volume, makes it apparent, and the examiner fids,that Schrafft candy represents a very small proportion of the totalIV oolworth candy sales. This includes Schrafft bulk candy as well asthe boxed candy-the product here involved. Approximately 85% or90% of the Schraff candy purchased by the II' ooIwOl'th stores is "bulk"candy, rather than the boxed candy involved in this proceeding.

51. Mr. vVil1iam C. Strom, the chief candy buyer for vYoolworthand the individual responsible for issuing "listings" on candy to the\V oohvorth stores, deals with approximately 400 manufacturers ofcandy who sell directly to IVoolworth. S01no of these 400 manufac-turers have candy comparable to the Schrat1't line. They includcamong others, Voneiff Drayer, Dewitt P. Henry, Derancl , E. .T. BrachSisco , Hamilton , Page & Shaw, Brown & I-Iollis , and Cauely Cupboard."'Voolworth purchases directly from all of these manufacturers, exceptSchrafft, at roughly comparable prices , with an average discount ofal'ound 4: 0% from the suggested retail price of Ow candy for the p1'e-

ticketed boxed candy.

3. W. T. Omnl Company

52. The T. Grant Company operates a chain of approximately850 retail stores in 44 States, selling geneTal merchandise , includingsuch items as enameled ware , hardware, appliances , notions and candy.Grant operates about six stores in New York City. The 850 Grantstores ' total volume of candy sales is between $15 million and $lG mil-lion per year , of which it is estimated that roughly $150 000 to $200 000or about 10%, is represented by candy manufactured by Schraf1't.

53. Alva Elliott , chief buyer of candy, cookies and tobacco for Grantis responsible for issuing "listings" on candy to the Grant stores.

54. Grant purchases c,mdy from about 300 or 400 different candymanufacturers, a,nel "listings" have been issued by the executive offceof Grant with rcspect to each of these manufacturers. Grant purchasesit.s boxed candy directly fr01l1 the manufacturer with the sale exceptionof Schraff boxed candy, which is purchascd from Schrafft whole-

salers.55. Somewhere between 200 and 400 of the Grant stores carry some

Schrrdft candy, but some stores with the largest candy sales volume donot handle any Schrafft candy.

5G. Individual Grant store managers order and purchase Schrafftcandy from the Schrafft wholesaler in their particular merchandisingareas.

FRA. G. SHATTUCK CO. ET AL. 339


;;7. Approxinmtely 2% or 3% of total candy sales is boxed candy.The remainder consists of bulk candy, candy bars , nuts, chewing gnmetc. Most of Grant's purchases of Schrafft candy is of bulk candy.Manufacturers of hoxed candy who sell directly to Grant include anumber which have lines comparable to Schraffts . Those manufac-turm' s include 'Vhitman , New England Confectionery Co., Ihmte(before it went bankrupt), Hershey, and others. They sell boxed candyto Grant at 40% off the suggested retail price. This is the Sal1le price '"hich local Schrafft wholesalers sell to Grant. There are so many candysuppliers that Grant does not find it necessaTY to bargain or negotiate,yith respect to prices and terms. If a loenJ Grant manager is unableto purchase Schraff candy at the 40% discount price from the localwllOlesaler , he wil1 not buy Schrafft merchandise (p. 688). Severaldifferent Schmfft wholesalers who refused the 40% diseOlmt lost thebusiness. As a result of not getting the .:10% discount from someSchmfft "hoJesalers, Grant did not place any of its 1D61 Easter candyorders with Schraflt wholesalers.

;,.

J. O. Penney

58. The .r. C. Penney Co. , Inc. , operates approximately 1 6DO retail

stores in the United States, of which approximately 80 have candy de-partments. None of its stores in the New York City metropolitan areahave candy departments. Penney sells m-er $3.5 milion worth of candya ye, of which less than 5% is boxed candy.

5D. Edwin Fox , chief candy hnyer for Penney, is responsible forissuing " listings" on candy to the Penney stores. Penney discontinuedlisting Schrafft candy on May 7 , 1D59 and insofar as Mr. Fox wasaware only one Penney store has continued to purchase SchrafI' candysince that chLte-the Buffalo , Now York store, which purchases Schrafftcandy from Attm. Eyen when Penney did have a listing for Schraffca.ndy the Penney stores did not purchase any significant amount ofSchrafft boxed candy, according to Mr. Fox s best recollection. Penneypurchases candy from about 75 or 80 different manufacturers , ancllist-ings ha.ve been issued to each of them (pp. 714-715). Boxed candy ispurchased directly from the manufacturer (p. 717), with the sale ex-ception of such Schrafft crLndy, if any, as an individual Penney storemay purchase from Schraff wholesalers , even though Schrafft candyis no longer 1istcd Jiany manufacturers sell directly to Penney Jinesof hoxed candy comparahle to the SchraiI line. These incJude Martha\Vashington 1:rs. Stevens, Cresca, and Brown &. Haley. Penney paysthe.se manufacturers from 40% to 43 % off the suggested retail price.At the time of the hearing in this case, Penney had aJso received , but



had not yet actednpon, an offer from Stephen F. Whitman Companyto sell boxed candy at 40% off the suggested retail price.

5. Walgl' een Drug Stores

60. Walgreen Drug Stores operates approximately 451 retail drugstores in the United Statcs. Joseph E. Wisniewski is the chief candybuyer for Walgreen. Representatives of Schraff do not seek to have

Walgreen issue a "listing" on Schrafft candy. Walgreen s Chicago

Illiois, warehouse has purchased Schrafft candy from P. J. RubeyInc., the wholesaler handling Schrafft candy in the Chicago arc" intlIe following quantities:

1957 --

------------------------

----------------------------- $75 375.1958 --------

---- -------

--------------------------------- 100, 999.1959 --

---------------------------------------------------

-- 57, 202.1960 ----

----------------------------------------------

----- 93, 417.

Most of the W'algreen Drug Stores handle Schrafft boxed candy. Salesof Schrafft candy to the Walgreen stores located outside the Chicagoarea are made to the individual ' Walgreen stores by local jobbers. Thepurchases by Walgreen s Chicago warehouse represent about 40% ofthe total volume of Schrafft candy handled by the vV' algrcen stores.Mr. Wisniewski' s offce lists Schraff boxed candy at "retail less 33% %and 10%" . This discount was in effect prior to Mr. vVisnieski's becom-ing candy buyer. Mr. Wisniewski believes that the vV,tlgreen storespurchase Schrafft candy from the Schrafft wholesalers at the equiva-lent of 40% discount from the suggested retail price , plus a 2% cashdiscount for prompt pa.yment.

61. Walgreen purchases Sehraff boxed candy directly ham Sehrafftwholesalers. 1'0 significant legally operative fact about the "lValgreen

handling of Schrafft boxed candy distinguishes the situation par-ticularly from United Whelan, Woolworth , Grant and Penney han-dling of the Schrafft boxed candy line.

6. S. S. Kresge Co.

62. Ralph P. Horner (p. 723), assistant regional manager of S. S.Kresge Company, was subpoened by complaint counsel even thoughEarl Schmoyer was its chief candy buyer at the time. The S. S. KrcsgeCompany operates approximately 790 retail variety stores in theUnited States, including about 187 in the New York region. EarlSchnloyer is the chid candy buyer for Kresge, and is the individual re-sponsible for issuing "listings" on candy to the Kresgc stores (p. 725).The individual Kresge store managers are not authorized to purchaseany candy or other merchandise which has not been listed (p. 725),

FRA G. SHAT'fUCK CO. ET AL. 341

31fi Initial Decision

and are not authorized to purchase on any terms other than those

stated in a specific listing (p. 727). Nothing in Mr. Horner s testimonyjustifies a conclusion other than that the Kresge listing procedure doesnot vary in any legally significant material respect from the procedures of the other chain stores whose chief candy buyers also testified.The testimony of these buyers in many respects was repetitious, cumu-lative, and nothing more than a rehash of the testimony of George

Crouse (p. 137 et seq), Sales Control Manager for Schrafft and itsassistant Sales Manager from 1948 until 1959.

63. The hearing examiner hereby finds and concludes that Schraffthas neither directly nor indirectly discriminated in price between differ-ent purchasers of its boxed candy of like grade and quality. It is undis-puted that Schrafft's selling and pricing procedures under which itsells its boxed candy exclusively to jobbers or wholesalers has ben continuous use prior to the 1936 amendments to the Clayton Act. Thereis no discrimination in price hy Schrafft in sellng to these wholesalersor jobbers. Complaint counsel has not alleged, nor has he attemptedto prove, that SchrafIt does discriminate in the price at which it sellsto wholesalers or jobbers. It further appears that Schrafft is the only

manufacturer of boxed candy (the product line here involved) whichstill does sell its boxed candy to jobbers and wholesalers, and not di-rectly to retailers. The Schrafft wholesalers and jobbers who testifiedin this record stated unequivocally that Schrafft does not, directly orindirectly, influence or control their pricing of Schrafft's candy tothe retailer. The differences in the prices at which the wholesalers orjobbers sell to the retailers are dictated by many factors, which includeamong them (a) the necessity of meeting competition and the demandswhich must be met to keep the business, (b) the size of the account(c) the promptness with which the retailer pays his bils and (d)whether the retailer buys in carton lots, or less-than-carton lots. Thewholesalers probably take into account also the retailer s purchases ofthe other products which the wholesaler sells, such as cigars, tobaccoclgarettes, novelties, chewing gum , nuts, bulk candy, appliances etc.etc. , and other factors related to the retailer s overall business relation-ship with the wholesaler.

64. There does not appear to be any S 2 (a) proceeding where acea.se-and-desist ordcr has issued based upon a marketing systemsuch as the one under attack here. In K raft-Phenirn 25 F. C. 37 (foot-note 3) supra the complaint 1ca8 dismissed. In Ohampion Spark Plug

00. 50 C. 30 , a S 2(a) case, the manufacturer had two marketingchannels , sold a substantial number of its spark plugs through distribu-tors, but at the same time made substantial sales to large fleets ofmotor trucks or buses; made a.greements with automobile manufac-

342 FEDERAL TRADE CO:-IMISSION DECISIONS


turers obligating the automakers to purchase from rcspondent theirentire requirements of spark plugs for a specified term; nsed two typesof agreements with its distributors; and otherwise directly con troll cdthe details of several dilie.ring distribution systems , which resulted incompeting se11ers buying at different prices.

65. In Eleotric Auto-Lite Company, 50 F. C. 73 , the manufacturerdiscriminated in the prices at which it sold spark plugs as between

(a) direct purchasers, (b) direct purchasers and indirect purchasersand (c) between spark plugs sold as original equipment and sparkplugs of like grade and quality sold for replacement. No discrimina-

tion by the manufacturer has been a11eged or proven in the instant

case. .In Auto-Lite as in Ohampion the manufacturer was operatingmore than one se11ing system, which also had separate pricing sys-

tems. The same is applicable to General Motors Corporation 50 F.

54. In Whitaker Cable 51 F. C. 958 (1955) aff'd. 239 F. 2d 253

7th Cir. (1956) cort. den. 353 u.S. 938 (1957), another automotiye-

parts case, purchasers from the manufacturer were of more than Dneclassification: W"rehouse Jobbers, Group Buying Jobbers

, '

Whole-sale Distributor Jobbers , and Private Brand Customers. The opinionfound inter alia (p. 962), "A11 of said private hrand purchasers soldto jobbers and direct to retail dealers and to this extent were in com-petition with respondenes direct and indirect purchasers hereinabove

described." In the instant case there is only one class of purchaser fromthe mRnufacturer-,the wholesaler or jobber.

66. E. Edelrnann

&,

Co. 51 F. C. 978; 239 F. 2d 152, anotherautomotive-parts case, found that respondent sold its products tosome 3500 to 4000 purchasers , of which approximately 40 were classi-fied as warehouse distributors, 15 to 20 as private brand accountssix as cooperative buying groups, fifty as industrial accounts, andthe remainder as automotive jobbers who either buy from petitionerdistributors or from petitioner direct (239 F. 2d 153). "The pricediscriminations which were found to be unlawful discriminationsresulted from the application of a 20% discount from a distributornet price on purchases of petitioner s brass line and 15 % on the glassand brake lines.

67. None of the features of Edelmann se11ing and pricing pro-

cedures which were found unlawful by the Commission and the courtare present in Schrafft' s sellng and pricing procedures.

68. Thompson Produots Inc. 55 F. C. 1252 , another automotiye-parts case, also involved more than one seIJing and pricing pro-cedure by the samc manufacturer. Its distributors were automotive-part wholesalers who annually executed distributor franchiseagremuents, and were served through respondent's repla,cement



division. The jobbers were wholesalers signing jobber franchiseagreements which required them , inter alia, to maintain an averageminimum dollar inventory on certain lines of Thompson merchandise.The prices at which Thompson sold its automotive parts to variousvehicle manufacturers were substantialIy lower than those receh-by it for parts of like grade and quality purchased by Thompsonindependent distributors and jobbers. The Thompson s sellng and

pricing procedures, like all the other automotive-parts cases, are so

nnlike the Schrafft selling and pricing procedures as to furnish nofactual basis for comparison.

69. In Dentists S,'pply 00. of New York 37F. C. 343 , the supplycompany manufactured and sold artificia.! teeth to (a) wholesaledealers known as dental supply houses, (b) to dental laboratories

and (c) to dentists. There again the manufacturer sold through threeseparate distribution channels, unlike Schraff, which sells only towholesalers or jobbers. In Dentists Supply the Commission foundthat the respondent discriminated in price among different customers

to whom it sold directly, and who were in competition with each otheron the same level of distribution. A volume discount was also involvedin this case. Neithcr the facts , nor the law enunciated by the Commis-sion, in Dentists Supply are applicahle to the Schrafft situation.

70. In General Foods Oo"poration 52 F. C. 798 , respondent wascharged with violating 2(a), 2(d), and 2(e) of the ClaytonAct, as amended. Respondent sold its products to institution whole-salers, to "Institution Contract Wagon Distributors , to wholesalersdealing exclusively in institution products , to wholesalers who dealtin both institution and grocery-pack products , and to numerous directbuying purchasers who operate for the feeding establishments. Itsgrocery-pack products were sold to wholesalers who resell to retailgrocers, to chain stores, to company commissaries and others. GeneralFoods marketing system in no way resembled nor can it be eqnatedto Schrafft's marketing system. At page 813 the hearing examiner

held:Under the doctrine recognized in Commission cases and cepted by the

courts, it is possible to consider a customer s customer as a "purchaser" withinthe meaning of 2(a) if in fact the original seller exercises such a degree of

control over sales by its direct customer that the latter s .sales are essentinllysales by the original seller. However , the decided cases disclose no common re-quirement, the absence of which would fail to establish an indirect customerof a manufacturer to be a "purchaser" from such seller. No case goes so faras to hold that solicitation of orders by a respondent manufacturer and turningover those orders to an intermediate Uistributor for biling and handling is suf-ficient to establish a seller-purchaser relationship between the manufacturerand the persons from whom sucb orders were procured. Tbe fact that respondent'



representatives may have suggested biling prices in a few instances does notindicate a policy or practice on. the part of the respondent, and in the absenceof further facts, there is no basis in the present record fora finding that theusers who thus procure respondent's merchandise faU within the "purchasercategory envisioned by fi 2 (a) of the Act.

On the whole record, the conclusion is reached that there is insuffcientreliable, probative and substantial evidence to support the conclusion that.any of the users of respondent's 'products who procure those products indirectlythrough intermediate sources of supply are "purchasers" from respondent withinthe meaning of the Act.

71. LUrJor , Ltd. 31 F. C. 658 (1940), a 2(e) proceeding, in-

volved the sale of toilet articles and cosmetics to retail dealers. Re-spondent sold its products to retail druggists and jobbers. Respondentby contracts , fixed the resale price of its products in every State ofthe Union where the law permitted it to do so. In that case respondentoffered its popular "Junior Size" 101 package only to novelty, variety,syndicate and 5 and 101 stores and refused to furnish such " juniorsize to competing purchasers (retail druggistsJ of the identical prod-ucts. In issuing its cease-and-desist order, the Commission relied uponits finding that Luxor s salesmen called on retail druggists who didnot receive direct shipments from Luxor, and , Luxor s pricing policiesDll its products ,yere 111aintainec1 as to retail druggists , who were notunder contract, and who purchased indirectly through drug jobbersin the same manner in which the prices were maintained , as to drug-gists who ,vere under contract to maintain prices and who received

direct shipments from Luxor.72. In his book The Price-Di8crimination Law Corwin Edwards

comments as follows (p. 627) :The cases involving disproportionate services have included proceedings, such

as that against Luxor, in which the Commission enforced the use of a channelQf distrbution that the seller had vainly sought to employ before the case , theuse of which was found to be undesirable by the distributors themselves after theorder. The cases against disproportionate advertising allowances made it difficult if not impossible to engage in selective advertising whether or not therewas a harmful competitive effect. The cases concerned with price discrimination included some, like the automobile parts cases, in which the Commissionperceived injury in the secondary line of coroerce even though the disfavoredcustomers were unanimous that they had not been injured; and some, like therubber stamp cases, in which disorderly price competition among small sellerswas held to be seriously damaging to competition among them. In policy towarddiscriination , the comprehensive sweep that was given to the concept of injurydetermined the impact 'of the statute; for cost justification was so diffcult thatit could seldom be successfully invoked, and the statutory meaning of gQod faithin meeting competition was so far from ordinary business conceptions of such

good faith that this type of defense held innumerable snares for the unwary.A considerable portion of the Commission s effort was spent in proceedings

FRANK G. SHATTuCK CO. ET AL. 345


among small concerns directed against injuries to competition that bad nothingto do with the big buyer or the predatory seller. Consequently, the statute has hadan unnecessarily harassing effect on business conduct. Moreover , in applying thelaw in this way. the Commission was diverted from the substantial problems ofpower, which were the principal concern of the legislation.

73. In Liggett MyeT8 Tobacco Oompany, Inc. 56 FTC 221(1959), a S 2(d) proceedmg, the hearing examiner discussed at lengththe "indirect customer" concept , a.nd analyzed Dentists ' Supply Com-pany, Luxor Ltd. , Kay Windsor Frocks , Inc. , Kraft-Phenix, GeneralMotors and Electric Auto-Lite. On appeal from that decision, Com-missioner Tait inter alia stated:The examiner additionally found, among other things, that 2(d) was notshown to have been violated through payments made to some customers such asvending-machine operators and not made on proportionately equal terms tocertain retailers (the so-called "indirect customers J purchasing respondent'cigarettes from wholesalers or jobbers, for tbe reason that such retailers werenot shown to be customers of the respondent within the meaning of 2(d).

74. Complaint counsel did not appeal from the hearing examinerfinding concerning "indirect cl1stomers , and the only reference to it inthe COITnission s opinion is cited above.

75. In his opinion, in Liggett il ye the hearing examiner interalia had stated (p. 233) :

The cases in which it has been decided that those who procured a respondent'products through an intermediate source \vere actually customers of, or pur.chasers from , such respondent within the meaning of the Clayton Act are Dotnumerous , and mOst .of them have involved 2(a) or 82(e) violations. All havebeen decided npon the principle that where such purchases were so made therespandent must have exe1'cised such a degree of control over the transactiontha, t the sales were aett.ally sales by respondent. (Emphasis supplied.

76. K. S. Oorp. v. Ohemstrand Oorporation 198 F. Supp. 310

(S. Y. 1961) cited by the court in American Ne""s , infra was aprivate action under S 2 of the Chtyton Act as amended. "Yhat was be-fore the court was a motion to dismiss the cOlnplaint. In ruling onthe 111otion the court said inter alia:

The ultmate determination as to whether suffcient control exists to make theplaintiff a purchaser within the meaning of the Act wil depend to a largeextent on the proof adduced as to the number and quality of the contacts be.tween Chemstl'and, the plaintiff, and Ifabrex. A reading of the above-cited casesindicates the vague line that separates a covered, indirect purchaser and onewho is not. It \vould appeal' that each case must be decided on its own facts.

.. .. ..

(Emphasis supplied.

77. American News Oompany v. FTO 300 F. 2d 104, (CA 2 1962),

was a proceeding by the Federal Trade Commission under S 5 of theFederal Trade Commission Act to reach practices allegedly vioJa-

313-121--70--

346 FEDERAL TRADE COllfMISSION DECISIONS


tive of S 2( d) of the Clayton Act as amended. In its opinion, the Sec-ond Circuit stated (p. 107) :The Federal 'l'rade Commission found that in every instance the nationalpublisher controls U1e prices and terms of sale throughout the distribution proc-ess, so that neither the national distributor nor the wholesaler has any power toset prices, terms, or conditions of sale to retailers of the magazi11e. :Morcover

since each publication bears a cover price chosen by the publisher, the publishereffectively sets the retail price as well. . ""

78. Continuing (p. 109) :

If the manufacturer deals with the retailer through the intermediary of whole.

salers, dealers, or jobbers , the retailer may nevertheless be a "customer" orpurcllllser" of the manufacturer if the latter deals directly with the retai1crs and

controls the term8 ttpon which he buys (quoting cases). (Emphasis supplied.

79. The testimony of Schrafft employees, the testimony of the

wholesalers themselves and all the other incidents of Schrafft's salesproeedures specifically negate a finding that "the manufacturer * * *controls the terms upon which he (the retailer of Schrafft' s candy Jbuys

80. At the argument 011 the proposed findings, the examiner re-quested complaint counseJ to specify the things which Schrafft

presently doing which complaint couusel would have Schmfft ceasedoing. His response, in substance, \vas that he would have Schrafftsell directly to the retailer. A marketing practice which has beenemployed for more than fifty ymlrs, and which directly beneils thewholesnJers who are part of it, must not , of coursc, be lightly orderedcast aside. 2(a.) does not empower the Commission to order a manu-facturer to desist fr01n any marketing procedure unless it is proventhat the manufacturer, either directly or indirectly, discriminates inprice between different purchasers of commodities of like grade andquality. Such proof being absent in this record as to the Schraffsales to its cnstomers, it must be found that a violation of 2(a) does

not stand proven in this record. 1:oreover, the proof in this caSe doesnot establish the fact that Schraff has exercised control over salesby its wholesalers to their retailers to such an extent as to justify a

finding that Schrafft "controls the terms npon which he (the retailer)buys (Ame1'icanNew8 Compa.ny v. FTC , BupnL).

IV. TheCaseAgainstWaZlace

81. IVallace, unlike Schrafft, sens its boxed candy directly to retailersby means of its own sales staff. IVallace does sell goods of like gradeand quality at differing prices to different retailers for resale.

82. In Buffalo , vVaJlace granted an additional 10% discount onboxed candy to Adam Meldrum & Anderson Co. Inc. , Hells & Kelly,


815 Init.ial Decision

and IVm. Hengerer department stOles. During the years 1958 and 1959such discOlmts were:

Adam .:Ieldrum & Anderson Co. Inc----___---

--------------

Hens & Kelly ----------------------

----------------------

Wm. Hengerer 00-_____----

---------------------------

(OX 738).

83. IVallace did not grant the 10% discount on boxed candy to Ger-trudc Shalala Candy Shoppe , Wiliam E. ::lathias Co. , or Wm. A.Jepson Inc. These latter retailers ' total purchases of IVallace packagedcandy of the type purchased by the department stores were:

1168 1959Gertrude Shalala______------------------------------------ 0 $61. 52

ln. E. 11athias_____-- ---------------------------------- $124. 00 187.Wm. A. JCIJson___--__-

----

-------------------------------- 754. 32 840.

. 10% discount on these purchases compara,ble to the discountgranted to the department stores would ha.ve amounted to totaladdi tion"l discounts as follows:

1958$103. 20

40.

1959$162. 98

25.59. DO

1958 1959

Gertrude Shalala______--

--------------------------------

---- 0. 00 $6.m. E. Iathias-____---------

------------------

----------- $12. 40 18.ll. \. Jepsoll--____---------- ---------------------------- 75. 43 84.

84. It has been stipuJated (CX 737) that the proprietors or ownersof Gertrude ShaJala Candy Shoppe, IVm. E. Mathias , and IVm. A.J cpson would, if called, testify (over a timely objection that the

opinion portion of the testimony constitutes conclusions of fact andexpressions of opinion) that:

They compete in tlle resale of Wallace boxed candy with tlle downtown depart-ment stores Adam Meldrum & Anderson Co. , Inc., Hens & Kelly, and \\Hel1gerer Co. ;

There is "keen competition in the Bale of candy products , and in their opinionif a competitor were able to purcllase "rallace boxed candy at a 10% 10lver pricethan they, this would adversely affect their business in that such competitor wouldllave a relativcly greater overall profit margin on such candy, which extra margincould be used to improve his facilties, advertise his proCIncts, or otherwi,:eimprove his 'competitive position;

'1' he two Gertrude ShaIala Candy Shoppes " take advantage of all trade dis-counts because suell discounts are extremely important in the computation of netprofit" ;

Tiley take advantoge of all cash discounts when possible, but no cash discountsha..e been taken on Wallace products during the past year;

The Wm. E. Mathias Co. Inc. 'store and cigar and candy stand have about$270,000 annual sales;

'1' he own€l" s average markup is about 23%, and is 33% on Wallace boxedcandy;

'1' hc owner takes advantage of all t.rade discounts because such discounts areextremely important in the computation of net profit ;

348 FEDERAL TRADE COM1\HSSION DECISIONS


Cash discounts particularly are very important to him, and he always takesthem;

During the past year he has taken advantage of the 2% cash discount forprompt payment offered by Wallace i

Wrn. A. Jepson, Inc., a fancy food store, does about $140,000 annual business;The company s net profit is between 2% and 2:1%, excluding the owner s salary

of $115.00 weekly;Its markup on Wallace boxed candy is 331ja% and the markup on many of the

grocery items carried varies from 25% to 10%;The owner takes advantage of all trade discounts when possible because such

discounts are extremely important in the computation of net profit;He considers the 2% cash discount very important, but very often the un-

availabilty of cash makes taking the 2% discount impossible;On occasion during the past year be has taken the 2% cash discount for

prompt payment offered by Wallace;During 1958-1959 Gertrude Shaiaia Candy Shoppes never took advantage of

the 2% cash discount for payment witbin fifteen days from the date. of theinvoice;

Upon a number of occasions Wm. A. Jepson Inc. did not take advantage of the2% cash discount.

85. In the Hochester area, Wal1ace granted an additional 10% dis-count on purchases of boxed candy to E. ,V. Edwards & Son and SibleyLindsay & Curr Co. department stores. Such discounts were :

1968 1959

E. VV. Ed",ards__ -------------------------------------- $107. 15 $13.

Sibley Lindsay & Curl' Co---

---------------------------

120. 84 167. 72

86. Wallace did not grant the additional 10% discount to Jose-phine Pcndleton (Hochester Nut Shop), nor to Jackson & Bailey,Inc. These retailers ' purchases of ,Val1ace packaged candy of the typepurchased by the Hochester department stores were: 1958 1959J. Pendleton (Rochester Nut Shop) -------------------------- $41. 84 $69.

Jackson & Bailey--------------------------

------------

---- 322. 32 316.

The adc1itionallO% disC01Ult on these purchases would have amountedto:

Rochester Kut Shop (J. Pendleton) -

--------------------------

J acksoll & Bailey ---------------------

------------ ----------

1958$4.32,

1959$6.31. 61

(See OX 737, OX 738.

87. It has been stipulated that the proprietors or owners of these

retail stores in the Rochester trade area , if called , would testify (overa timely objection that the opinion portion of the testimony con-

stitutes conclusions of fact and expressions of opinion), that they

compete in the resale of 'Wallace & Co. boxed candy with the down-town Rochester department stores E. ,V. Edwards & Son and Sibley-Lindsay & Curr Co. that there is "keen competition in the sale of

FRA."K G. SHATTUCK CO. ET AL. 349


candy products ; .md that, in their opinion, if a competitor were ableto purchase .Wallace boxed candy at a 10% lower price than they, thiswould adversely ai!'ect their bnsiness , in that such competitor ,,'ouldhave a relatively greater overall profit margin on such candy, whichextra margin could be used to improve his facilities, advertise hisproducts or otherwise ilnprovB his cOlnpetitive position.

88. Jackson-Bailey Inc. , is a confectionery store located outside thedowntown shopping area of Rochester. It sells ice cream, candy, nutsand greeting cards, and its total annual sales are between $50 000 and

$60 000. The sale of ice cream accounts for slightly over 50% of itstotal business. Its "business has been getting progressively worse overthe past three years , and, as a reslllt, the president of the company"has not been able to draw any salary from the business for the pasttwo years . Overall markup on all its products is about 35%, andon 'Wallace boxed candy, 13%. The owner takes advantage of alltrade discounts because such discounts are extremely important in thecomputation of net profit. During the past year he was unahle to takeany cash discounts because of the lack of available cash.

89. The Rochester Nut Shop (Josephine Pendleton) is a confec-tionery store located in the downtown shopping area. It sells onlynuts and candy. Its total sales for 1960 wcrc ahout $36 000 , with anet profit of slightly less than 15%, including owner s salary. Over-all marlmp on all or most of its products is 33% %. The owncr "takesadvantage of all trade discounts because such discounts are extremelyimportant in the computation of net profit" . She takes advantage ofthe 2% cash discolUlt for prompt payment whenever possihle, butsometimes she cannot take advantage of it beca.use of the lack ofavailable cash.

90. During the yellrs 1958 and 1959 Jackson & Bailey Inc. , andJosephie Pendleton (Rochester Nut Shop) usually did not take ad-va.ntage of the 2% cllsh discount for payment within fifteen dllYS ofthe dllte of the invoice.

1. Wallace 8 Defense of No Inju1'j to Competition

91. The Supreme Court held in FTC v. Anheuse' r Busch, Inc. , 363S. 536 (1960), that a price discrimination under g2(a) is mcrely

a price difference. Applying the rationale of that decision tD thiscase, it wouldllppear that complllint counsel has, as to vVallace, madeout a prima facie

case. However, in Anheuser Busch the Suprcme

Court remanded the case to the Seventh Circnit for that circuit

make a determination of whether the record would snpport the requi-site fiding of competitive injury. The Seventh Circuit found that



the requisite competitive injury had not been proven , and dismissedthe proceeding (289 F. 2d 835).

92. No evidence of actual or probable injury has been adduced in

this record except the non-probative , speculative and conjectural stip-ulated evidence of retaiJers in Commission s Exhibit 737. Howeveras this examiner reads the holdings of the Federal Trade Commis-sion in Tri Valley Packing Association Dockets 7225 aud 7496 (Com-missions' opinion dated May 10 , 1062) (60 F. C. 1134, 1168J, Amer'i-can Oil Oompany, Docket 8183 (opinion datecl June 27, 1062) (60

C. 1786 , 1804J, and United Biscuit Oompany of Arner'ica Docket7817 (opinion of the Commission dated June 28 , 1962) (60 F.1893J, such proof of competitive injury is no longer required. TheCommission has emmciated a per' 8e standard for judging probable

injury to competition under 2(a) of the Robinson-Patman Act.93. In Tr'i Valley, the Commission held (p. 1175) :

'" .. . In view of our holding tbatreSIJOndent' s price discriminations may resultin injury to competition regardles8 of whether there 1s actual competiton -in theresale a/uZ tl1stribution of the prod1lctsinvolvea 'in the discrindnat-ons we believethat the phrase '; in the resale and distribution of respondent's products" undulylimits the scope of the order und should be deleted therefrom. (Emphasis

supplied. )

and on page 1171 :

In any case involving the effect of a price discrimination on competition be-

tween buyers, the requisite injury may be interred from a showing that a pur-cha er paid sUbstantially less than its competitor for goods of like grade and qual-ity so1( by the l' cspondent (F'edera, l Trade Commission v. Morton Salt Company,

81tpra) ; and it has been held that such an inference is permissible despite testi.many b r the nonfavored purchaser that he had not been injured by the discrimi-nation. Moog Inaustrles, Inc. v. FrlleTal Traae Commission 238 F. 2d "13 (1956) ;

E. Etlelmann cf Co. v. Federal Trade Commission 230 F. 2c1152 (HJ56). (Empha-sis supplied.

94. In Aone1'ican Oil the Commission in its opinion (p. 1806) inter-preted Mm.tonSalt 00. (334 U. 37 (10,18)) as holding:

in price discrimination cases involving competition between buyers, the requisiteinjury to snch competition may be i11fe1Ted from a showing that the seller ('hargedODe purchaser a higher price for like goods than he had charged one or moreof the purchaser s competitors and that the amount of this discrimination wassubstantial. (Emphasis supplied.

95. Although A nheuse1' was remanded by the Supremc Court forthe Seventh Circuit to determine whether there was proof of competi-tive injury in the record, it would appear that the opinions in Tri Val

ley, A?1wr'ican Oil and United Bismdt e1iminate the requirement or

proof of competitive injury. In Amer'ican Oil (page 3) the Commis-sion stated: "Hence, it is unnecessary to determine whether the hearingexaminer s fiding of actual injury is supported by the record.

FRA.'I G. SHATTUCK CO. ET AL. 351


96. In United Biscnit Docket 7817 (60 FTC 1893, 1898J (opinion ofTune 28 1962), the Commission stated , in commenting on Tri Valley:

in any case involving the effect of a price discrimination on competition betweenbuyers, the requisite injury may be interred from a showing that a purchaser paidsubstantially less than its competitor for goods of like grade fmd quality sold bythe respondent and that the question of substantiality must be determined fromthe facts in each case. (Emphasis supplied.

97. As the exam;iner reads the Commissiol1 s opinions in Tri Valley,

American Oil and United Biscuit the absence of proof in this recordof competitive injury resulting from vVanace s price differentials doenot compel a dismissal of this proceeding as to \Vallaee.

98. However, IVa.llace defends fnrtber on the grounds that its lowerprices to some pure-hasers of its candy were made in good faith to meetan equally low price of a competitor. The evidence shows and the exam-iner further finds:

reo WaZZaoe s "Meeting Oompetition" Defense

99. The additional 10% discOlU1t 1vas granted by IVallace to thedepartment stores in Buffalo and Hochester because the offcers of 11'",1-lace honestly and reasonably believed , in good faith, that they weremeeting the equally low prices oi:1erecl and given to thm=e same depart-ment stores by a large number of ,Vallace s competitors, including,alTIOllg others , Russell Stover Candies e\V England Confectionery(Candy Cupboard), Cresca (Pascal), Stevens Candy Kitchens (Mrs.Stevens), Maple Grove , DeMet's , Loft, Jaret Imports Inc. , EdwardSharp Sales Inc. , J\Iaillard , Bonomo , Brown & Haley, VV'hitman , Estefiler & Hollis, Delson , Goetz , Parkside, vYunderle, Peerless, Rose-

mary DeParke and Louis Sherry. The need of meeting this competitionwas confirmed by the testimony of wholesalers in Buffalo , Rochesterand Syracuse: Attea , Zutes, and Rose who sell or attempt to sell candyto these same department stores; and by the testimony of the candybuyers for United vVhelan , F. IV. IVoolworth , VV. T. Grant , and J. C.Penney Co. These candy buyers testified that they purchase candy atprices equivaJent to at least a 40% discount from the suggested retailprice from many competing candy companies, including, among others:vVhitnmn , Page & Shaw , VoneiJ1 Drayer, DelVitt 1' Henry, Derand,E. J. Brach, Sisco , I-Iami1ton, Brown & Hollis, Candy Cupboard:\Iartha \Vashington , 1\1rs. Stevens, Cresea and Brown & Haley.

100. John P. Joyee, who had been associated with vVallace for along time and had been vice president in charge of sales, left Wallaeeon June 15 , 1961 , and was, at the time of his testirnony, sales managerfor the Loft Candy Corporation. His testimony appears at pages 880

et seq. of the reeord. At page 898 Mr. Joyce testified that in pricing

352 FEDERAL TRADE CQlI'MISSION DECISIQ:.S


Wallace packaged candy to thc E. ,Y. Edwards department store andSibley Lindsay & Curr stores in Rochester, and to the AdamsMeldrum & Anderson Co. Inc. and "\Vil1irull Hengerer Co. dep Ttmentstores in Buffalo, he actually believed in good faith that he wasmerely meeting the equally low price,s offered and given to these par-

ticular department stGres by the competing sellers or candy 0)

Wallace had been granting thc additional 10% discount to all thedepartnlent stores , without excepUon , for as long as J ayee had beenin the business. These same department stores took a higher markupon bulk caudy (not involYed here) than on boxed candy becctuse ofhag shrinkage . The Rochester and Buffalo department storcs wcre

receiving the additional 10% discount on 'Wallace package candy atthe time Mr. Joyce went with 'Wallace. It was )fr. Joyce s "educatedguess ' that the practice of the candy 11lanufacturers allowing the de-

partment stores the additional 10% discount on packaged candy be-gan "some forty years ago . The ma,nufacturers who refused thisadditional discouut simply did not get the pieckaged-candy business.

101. Packaged candy has heen sold to the department stores formany years past at a wholesale price which reflected a 40% markup,based upon the suggested retail sales price.

102. It is complaint counsel's position that "a seller who adopts iesystem of pricing which results in routine and continuing discrimi-nation in fa VOl' of all department store cust01llerS has no standing invoke S2(b)" " citing Federal Trade Oommission v. A. E. Staley Mfg.00. 324 U. S. 746 (1945) and Federal Trade Oommission v. OementInstitute 333 U.S 683.

103. The Supreme Court, in Federal Trade Oommission v. StandardOil 00. 355 U. S. 396 (1958) (a sequel to Standard Oil 00. v. FederalTrade Oommission 340 U.S. 231 (1951)), specifically approved aS 2 (b) defense in a factual situation similar to the one proven here.

In Standard Oil the Suprcme Court took cognizance of Staley, OementInstitute and National Lead (355 U.S. 401), but held, nevertheless,that the S 2 (b) defense was properly invoked. In Standard Oil as in

this case, the pricing practice apparently preceded the 1936 Robinson-Patman amendments to the Clayton Act.

104. At page 402, the Court said:It appears to us that the crucial inquiry is not wby reduced prices were :frst

granted" '" . but rather why the reduced price was continued subsequent topassage of the Act in 1936 , li "'

Respondent 'Wallace s exhibits 6 through 18- , read in conjunction

with the testimony of John P. Joyce (who hied been in the candy busi-

1 See complaint counsel's reply memorandum fied August 31 , 1962.

FRANK G. SHATTuCK CO. ET AL. 353


ness for many years) and the other evidence in this record , support afiding, and the examiner does fmd , that Wallace s additional 10%discounts to the retailers, as proven in this record, were "* * * ' a response to individual competitive situations, rather than pursuant toa pricing system . . " " (see Standard Oil, supra 355 U.S. at 404).vVallace has proven that its lower prices to some purchasers were madein good faith to meet an equally low price of a competitor, orcompetitors.

COXCLUSIONS

1. The Federal Trade Commission has jurisdiction over the sub-ject matter of this proceeding, and over the respondcnts Frank G.

Shattuck Company, W. F. Schrafft & Sons Corporation, and Wallace&Co. , and these respondents 'a.re engaged in commerce as "coIDlnerce" isdefined in the Clayton Act as amended.

2. This record does not support the conclusion that respondent

Schrafft' s Sales Corporation was engaged in commerce, as "com-merce" is defined in the amended Clayton Act. The Federal TradeCommission does not have jurisdiction over Schl'afit' s Sales Corpora-tion, and this complaint should he dismissed as to that respondent.

: Respondent Frank G. Shattuck Company does not manufacturethe product line involved in this proceeding. As to its wholly ownedsubsidiaries, VV. F. Schrafft & Sons Corporation and .Wallace & Co.,who do manufacture and sell such product line, Shattuck does notdetermine, direct, or control the prices , terms , and other po1icies uponwhich such wholly owned subsidiaries do sell the product line anddeal with their customers. Responclent Frank G. Shattuck Companyhas not been proven in this record to have violated the Clayton Actas charged in the complaint. Tho complaint should be dismissed as

to respondent Fran G. Shattuck Company.4. Respondents W. F. Schraff & Sons Corporation and Wallace

& Co. manufacture and sell the product line involved in this pro-ceeding. In the course and conduct of their businesses in commerceSchrafft and vVallace are competitively engaged with other corpor-ations , individuals , partnerships and iirms in the manufacture, dis-

trihution and sale of their products.5. The evidence in this record does not establish that 1V. F. Schrafft

& Sons Corporation, in the course of its trade in commerce and in itssale of the product linG here involved, has discriminated in price,either directly or indirectly, between different purchasers of com-

modities of like grade and quality by selling to some purchasers at

higher and Jess favorable prices than they sell to other purchaserscompetitively engaged in the resale of their products with the more

354 FEDERAL TRADE COMMISSIOK DECISIOXS

Opinion 65 F.

tvorecl purcha.sers , as charged in the complaint. The complaint shouldbe dismissed as to the respondent IV. F. Schraff & Sons Corporation.

6. The evidence in this record establishes that respondent ' Wallace& Co. sold its products of like grade and quality to some purchasersat higher and less bvorable prices than it sold such products to other

purchasers competitively engaged in the resale of its products withthe non-favored purchasers. 1Vallace & CO. s lower priess to some pur-chasers were made in good faith to meet the equally low prices of itscompetitors. The complaint should be dismissed as to IV all ace & Co.

ORDER

Now, thereforeIt i8 ordered That the complaint, and this proceeding, be and here-

by are, dismissed as to each and all of the respondents Frank G. Shat-tuck Company, IV. F. SchraITt & Sons Corporation , Sehrafft's SalesCorporation , and IVallace & Co. , jointly and severally.

OPINIO OF THE DIISSIOX

APRIL 22 , 1004

By DIXON ornmiss7:oner:This matter is before us on the appeal of Commission counsel from

the hearing examiner s dismissal of the complaint, which had chargedeach of the respondents with price discrimination in viola ton of Sec-

tion 2(a) of the Clayton Act, as amended by the Robinson-PatmanAct (49 Stat. 1526 (1936), 15 U. 13(a)).

Briefly summa.rized , the corporate relationships of the various re-spondents are as follows. Frank G. Shattuck Company is the parentcorporation and owns all of the stock in the remaining respondents.Shattuck was made a party to the proceeding solely on the theorythat it exercised suffcient direction and control over the sales activitiesof its wholly owned subsidiaries to be held1egally responsible there-for. IV. F. SchraITt & Sons Corporation maintains a plant in Charles-town , l\1assachusetts where it produces candies for a nationwide mar-ket. ''Vall ace & Company 111wufactures candy for sale in commerceat its Brooklyn, New York, plant. Schrafft's Sales Corporation is awholesaler located in the city of Kew York and is engaged primarilyin the sale of candy products mannfactured by IV. F. Schrafft & Sonsand Wallacetoretailersinthatcity.

After the record had been closed , counsel supporting the complaintrecommended to the examiner that the charge against Frank G.

Shattuck Company, the parent corporation , be dismissed on the basisthat the evidence failed to show that it was responsible for the sales

FRA K G. SHATTUCK CO. ET AL. 355

315 Opinion

policies of its subsidiaries. I-Ie also recommended that the chargeagainst Schrafft's Sales, whose activities were confined solely to in-trastate salcs, be dismissed. The examiner made independent findingsof fact in accord therewith , and these findiJlgs, which are supportedby the evidence, are hereby adopted as the findings of the Commis-sion. 'V. F. SchraJI & Sons Corporation and vVa11ace & Company,both of which are manufacturers of candy products, are thns the onlyrespondents before us at this time. The charges against each presentdifferent problcms and accordingly will be discussed separately.

VV. F. SchrafI & Sons markets its boxed or gift candy, the productin issue, through wholesalers who resell the products to retailers.Although Schrafft makes a few sales directly to supermarkets, theseparticular sales constituted only a sma11 part of Schrai1t's total sales

at the time of the hearing and are not in issue in this proceeding.Thus, for the purposes of this case, all of Schrafft's sales of itsproducts were made to wholesalers. Thcse wholesalers purchase theproducts from Schrafft at a uniform price, regardless of their subse-quent customers , and resell them to independent retailers and to suchchain organizations as F. VV. vVoolworth Company, .V. T. GrantCompany, and vValgrcen Drug Stores. The charge is predicated uponthe fact that the chains are able to purchase Schraff' s candies fromwholesa1crs for less than independent retailers purchasing the sameproducts from the same wholesale.rs. Independent retailers arechargcd a price computed on the basis of a 33113 % discount from thesuggested consumer price, while chain stores arB granted an additional10% discount from the price at which the independents purchase.The additional discount permits the chain stores to purchase at 40%off the suggested consumer price and was thus sometimes referred toin the transcript as a 40% discount. A discount of 2% is also avail-able to both classes of customers for prompt payment.

The first question which arises is whether responsibilty for theseprice differences attachcs to Schraff, since instead of sellng directlyto retailers, Schrafft utilizes a distribution system in which it seBsto wholesalers who in turn reseB the products at differing prices toretailers. ",Ve haNe held in prior cases that where t.he evidence demon-strates that the ma.nufacturer exercises a. specified degree of controlover the relationships and terms of the sale which occurs when theretailer purchases from the wholesaler, the retailer may, for thepurposes of the Clayton Act as ",mended , be deemed an "indirect pur-chaser" from the manufacturer. E.g. , Kraft-PheniO! Oheese Oorp. , 25

537 (1937); Luxor, Ltd. 31 F. C. 658 (1940); Dentist, ' Sup-

356 FEDERAL TRADE COMMISSIQ"f DECISIONS

Opinion 65 F.

ply 00. of NMV York 37 F. C. 345 (1943); Ohampion Spark P/Jg00. 50 C. 30 (1953). The courts have recognized and applied theindirect purchaser doctrine on several recent occasions. , K. S.Om'

p.

v. Ohemstmnd Oorp. 198 F. Supp. 310 (S. 1961); Amer-ican News 00. v. Fedemll'rade Oommission 300 F. 2d 104 (2d Cir.1962), ce7't. denied 371 U.S. 824 (1962). Although the court in Klein

Lionel Oorpomtion 237 F. 2d13 (3d Cir. 1956), declined to extend thedoctrine to situations where the control was exercised through statefair trade contracts, no such issue arises in this case.

In determining whether the doctrine enunciated by these cases isappJicable in a particular situation , the decision must be made on acase-by. case basis with careful scrutiny of the diiIering circumstancespresented in each instance. K. S. Om'

p.

v. Ohemst7'and Om' , s"pm.From an examination of these and other cases, it appears that then10st important factor to be considered is the degree of control exer-cised by the manufacturer over the prices and other terms of the salemade by the wholesaler to tho retailer. Anothor is the extent, if any,to which the mannfacturer deals directly with the retailer and by suchdea1ing recognizes the reta,iler as his cllstomer. Examples of instancesof direct contact which are of particular significancc are negotiations

of franchise agreements with the retailer , negotiations ,,,ith the rota-nerconcerning thc price which the retailer will be ehargcd by thc whole-saler attempts by the manufacturer s salesmen to solicit orders fromthe retailer, policing of the retailer s resale prices by the manufacturerinspections by the manufacturer to c1eterlnine whethe.r the retailer isfulfillng his obligation to the wholesaler, and furnishing of ad vertis-ing supplies to the retailer by the manufacturer.

In this case, the transcript is replete with instances of direct con-

tact between Schraff and all rctailers of its products, hoth chain andindependent. Schrafft registers its products with the central purchas-ing offces of the various chains so that the products will be listed forpurchase by the buyers of the local outlets. As required by the chainsthe registration states the price at ,vhich the products are availableto the chains ' local outlets. The chains have indicated that they wilnot "list" products for purchase by thcir Jocal outlets unJess the prod-ucts may be obtained at a price not greater than 40% off the suggestedconsumer price. Schrafft has thus infonnecl the central purchasingoffces of the various chains that its products may be purchased fr01TI

wholesalers at such a price, which is 10% less than its usual suggestedwholesale price. .When chains have been billed by the wholesaler atthe normal rather than the preferential price established by the actof registration, occasionally the chain has complained directly toSchrafft and Schrafft has intervened for the purpose and with the

FRAKK G. SHATTUCK CO. ET AL. 357

315 Opinion

effect of obtaining for the chain the lower price. Furthcr, Schraff'salesmen visit the various retailers. During these calls , the salesmenmay promote now products, advise the retailers on methods of disphtyand advertising, and even solicit orders. Schrafft requires that its sales-mcn complete and file with it a specific form after such visits. Ohvi-ously, therefore, Schrafft deals directly in many ways with the retailerswho market its products, thus providing a basis for an inference thatit recognizes these retailers as its own customers.

On the other hand, the evidence is patcntly insuffcient to establishthat Schrafft exercises any significant degree of control over the termsof the sales made by the wholesalers to thc independent retailers pur-chasing its products. Although the wholesalers usua.l1y eharge the inde-

pendent retailers Schrafft' s suggested price of 33V3 % off the consumerprice, the transcript revealed instances where independents were ableto purchase from the wholesalers at the lllore favorable chain storeprice. Several wholesalers testified that they were free to set the pricesat which they sold their products. One testified that ho always soldto the independents at the S:llnc price at which he sold to chains, andanother stated that if he received enough pressure from independentshe made the lower price availahle to them. Further, and by way ofdistinguishing this case from ot.hers of a similar nature, there isno evidence that any contracts have been executed between the whole-

salers and the independents governing the prices and terms of thosaJes hy the wholesalers to the independent retailers , the provisionsof which wel'e established by Schmfft. It does not appear tlmt Schmfftrequires the retailers to maintain a minimum inventory or a completeline of its products, or that it attempts in any ,yay to enforce the pricewhich it suggests that the wholesalers charge the independents for itsproducts. In short, there is little to indicate that Schrafft could eradi-cate the price difference in favor of the chains by requiring that thewholesalers make its products available to the independents at the samelower price even if it attempted to do so.

Complaint counsel arglles tbat a fiding that the independentretailers are indirect purehascrs from Schrafft is not necessary for aholding that Schrafft has discriminated in price. In essence , the argu-

ment is as follows. Schraff intervened in a sales distribution system

which isolated it frOln direct sales contact with retailers by knowinglyestablishing a discriminatory price in favor of the chains. The act ofintervention was an act of control over prices "which created a dis-crimination whiGh IVould not otherwise have existed. Thus, according

to complaint counsel , the power of control over the prices at whichchains purchase fl'Onl wholesalers create, s a corresponding duty to

358 FEDERAL TRADE CO:\IMISSION DECISIONS

Opinion 65 F.

protect other retailers from price discrimination. The failure to ful-fil that duty is the basis for liability under Section 2(a).

\Ve are unable to adopt this theory. The instant case presents aunique factual situation. All of the sales in issue were made by Schrafftto indepenclentwholesalers at uniform prices. The acts of discrimina-tion occurred in subsequent sales by the w hole.salers to the variouschains and independent retailers. .With the facts in this posture, we are

of the opinion that Schrafft may not be held responsible for the dis-crimination unless it can be shown that both the chains and the inde-pendents aTe "indirect purchasers," as that tenn has been defined , fromSchraff. Our finding that. the independent retailers are not "indirectpurchasers" is thus a finding that an essential element of the offensehas not been established and compels dismissal of the charge againstSchrafft. vVe express no opinion on whether Schrafft exercises suf-ficient control over the price charged the chain stores by the whole-salers o support a finding that the chains afe "indirect purchasers.

II.The packaged candy products manufactured by Wallace & Com-

pany are sold to retailers through several channels. Some are marketedthrough a distribution system composed of some forty brokers andthirty-five jobbers or wholesalers. However, the ILajority of 'Wallacesales are made directly to approximately four thousand retailers , andit is with these latter sales that we are presently concerned. '\Vallace

normal wholesale price is 331j3 % less than the suggested consumer

price. Chains and department stores purchase at 10% less than thenormal wholesale price or 40% off the suggested consumer price. Thatprice difference was the basis for the charge of price discriminationagainst ,Vall ace.

The hearing examiner found the evidence insuffcient to supporta finding of probable competitive injury, but after commenting thatthe Commission had established a "per se" rule on that issue, heldthat such a failure of proof was not grounds for dismissal. Uponconsideration of "lVallace s defense that its prices were granted ina good faith attempt to meet lmvcr prices of competitors , the examinerconcluded that the prices had in fact been so granted and OIl that

basis dismissed the charge. Although we are in agreement with theexaminer that the charges against ,,,.. allace should be dismissed , we

have concluded that the dismissal must be upon different grounds.,Ve reject outright the examiner s conclusion that a failure of proof

on the issue of probable competitive injury is not grounds for dis-missal of a charge of price discrimination , and turn to a considerationof the evidence offered in support of this issue. The evidence on thequestion is limited to the cities of Buffalo and Rochester, New York.


315 Opinion

Instead of calling witnesses, a stipulation containing the expected

testimony of three non- favored independent retailers from Buffaloand two non- favored refa,ilers from Rochester was introduced. Oneof the retailers from Buffalo was engaged in the sale of candy prod-ucts, another operated a cigar and candy stand , while the third wasclassified as a fancy food store. In Rochester, one of the retailersrealized over 50% of his business from the sale of ice cream , whilethe other operated a store selJng candy and nuts exclusively. AU,if calJed , would have stated that they compete with several specificstores which, according to other evidence, recei veel the preferentialten percent discount. They wonld have testified further that compe-tition in the sale of candy products is keen , that they take advantageof alJ trade and cash discounts where possible, and that, in theiropinion , if a competitor were able to purchase \;Y all ace boxed candyat ten percent less , their business would be adversely affected becausethe greater over-aU profit margin on candy could be used to improvetheir competitors ' position in the market in various ways. All con-sidered the 2% cash discount to be "extremely important

" "

veryimportant " or "particularly important." However, four of the fivedid not habitually tnke advantage of it. Tl1ree assigned as their reasonthe unavailability of funds , but no reason ,vas advanced by the fourth.The stipulation revealed the average net profit margins of only twoof the five witnesses. The fancy food store loeated in Buffalo reportedan average net profit margin of 2 to 21h% on annual sales of $140 000.The other, the candy and nut store located in Rochester, reporteda net profit during 1960 of slightly less than 15% on sales of $36 000.o further information on the average not profit margins of the

non-favored retailers of vVal1ace candy appears. The stipulation issilent on the average net profit margin realiz.ec1 from the sale of 1Val-lace products considered separately.

In addition to the stipulation of expected testimony complaintcounsel introduced invoices showing all sales made by IVallace inthe Buffalo and Rochester areas clul'illfT the veal'S 1958-1959. These,0 invoices revealed the cash valu8 of the discount granted to the favoredretailers and provided a basis for a computation of what the valuewould have been to the non- favored retailers during those :years. Ac-cording to the examiner s calculat.ions , the value of the discount tothe non- favored Buil'alo retailers reporting an average net profit mar-gin of 2 to 2Jh% on annual sales of $140 000 would have been $75.43

in 1958 and $84.06 in 1959. Tbe cash value to the Rochester retailerreporting a net profit margin of slightly less than 15% on annualsales of $36 000 would have been $4.18 in 1958 and $6.94 in 1959.

In a case such as this , where there is no proof of actual competitiveinjury and the non-favored retailers resell the products at a preticketed

360 FEDERAL TRADE CO::VI:.SSION DECISIO:

Final Order 65 F.

price, factors such as the net profit margins of the non-favored retail-ers and the extent to which they take advantage of the 2% cash dis-count take on an added significance in determining the probabilityof competitive injury. Thus, where the discrimination does not alterthe price at which the product is ultimately resold , the effects of thediscrimination must be measured with reference to such factors asthe impact on average net profits. "Were, as here, the nOllwfavoredretailers are engaged in diiI'erent types of retail business , and the evi-dence reveals the net profit margins of only two , whose profits aresomewhat divergent, there is little upon which to project the probableeffects of a discrimination. In addition , although we are told tlUttcompetition in the sale of packaged candy is keen , so much so thatthe cash discount of 2% is of extreme importance, the evidence revealsthat four of the five non-favored retailers did not habitually takeadvantage of this discowlt. In these circumstances, we find that thereis in this record no basis for an informed determination of the prob-able competitive effect of 1Vallace s price discriminations.

In view of the foregoing, we find it unnecessary to reach 1VaUace

contention that the discriminatory prices \yere granted in good faithto meet the 10\v81' prices of its various competitors, and as a conse-quence we do not adopt the examiner s findings and conclusions in

regard thereto.For the reasons state, , the charges against each of the respondents

will be dismissed. An order modifying those parts of tI,e initial de-cision in conflict with our vie,vs as discnssed herein and adoptingthe decision as so modified will issue. Rules of Practice, Section

24(b) (August 1, 1963), 28 Fed. Reg. 7080 , 7091 (,July 11 , 1963).Commissioner iaclntyre not concurring for the reason set forth

in the order , and Commissioner Reilly not participating for the reasonthat he did not he tr ora1 argument.

FINAL ORDER

This matter having been he,arc1 by the Comrnission npon appeal bycounsel supporting the complaint from the hea.ring examiner s initial

decision , elated September 20, 1962 , and upon briefs and argumentin support thereof and in opposition th reto; and

The Commission having rendered its decision determining that theappeal shou1c1 be denied , and that the initial decision of the examinershould be modiiied in accordance with the views and for the reasons

expressed in the accompanying opinion , and , as so modified, a.dopteda.s the decision of the Commjssion:It is ordered That the initial decision , dated September 20, 1962

, and it hereby is , modified by striking from the findings of fact

CONTINENTAL PRODUCTS , ET AL. 361

315 Complaint

paragraphs 32 and 33 , paragraphs 63 through and including para-graph 80 , paragraphs 91 through and including paragraph 104; bystriking from the conclusions paragraph 6; a.nd by substituting there-for the findings and conclusions of the accompanying opinion.

It is further ordered That the initial decision as above modified andas modifed in the accompanying opinion he , and it hereby is, adoptedas the decision of the Commission.

Commissioner :Maclntyre not concurring for the reason that he con-siders this to be a price discrimination case of a fundamental typewhere competitive opportunities of small business retailers arc sub-stantially adversely affected hy a continuing 10% price discriminationin favor of the large cha.ins with which they "keenly" compete andconsequently, believes that minimally this matter should be handled

in the same manner as Federal Trade Commission Docket No. 8513

In the MatteT of .Atlantic Products C01'1oration , et al (December 13

1963) (63 F. C. 2237J. Commissioner ReilJy not participating forthe reason that h did not hear oral argument.

IN THE 1\iA'IER OF

CONTINENTAL PRODUCTS, INC. , ET AL.

onDEn , OPINIOX , ETC. , IN REGAnD TO THE ALU:GED VIOLATIOX OF THE

FEDEnAL TRADE cO:.I1nSSION ACT

Docket 8517. ComplaInt, June 19GB-Decision, Apr. , 1964

Order requiring Cbicago sellers of various articles of mercbandise , includingjewelry, cameras, typewriters, hardware , SI)Orting goods and appliancesto retailers and to the public direct, to cease representing falsely tl1at theirmerchandise was offered for sale at wholesale prices by such statements incatalogs and circulars as "* .. It a wbolesale catalog '" '" '" at the lowestwholesale prices" " * general wholesale merchandise * * "' " The evidence

is insuffcient to support the allegation in the complaint challenging respond-ent' s use of the term "retail price

COMPLANT

Pursuant to the provisions of the Federal Trade Commission Actand by virtue of the authority vested in it by said Act , the FederalTrade Commission, having reason to believe that Continental Prod-ucts Inc. , a corporation , and Gaxrison G-rawoig, Allen Grawoig, Earl,Y. Gmwoig, Richard N. Gra' oig ,md Paul I. Mayer, individuallyand as offcers of said corporation , 11creinafter referred to as respond-ents, have violated the provisions of said Act. , and it appearing to the

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Volume 65: Pages 246-361 - Federal Trade Commission

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